Exercise #8

Exercise #8 - .054) = .1294 Unexpected return : R E(R) =...

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1 Finance 355: Investments Instructor: Shuming Liu In-Class Exercise 8 The risk-free rate is 5.4 percent and the expected return on the market is 11.2 percent. Stock A has a beta of 1.3. For a given year, stock A returned 14.8 percent while the market returned 12.7 percent. The systematic portion of the return was _____ percent and the unsystematic portion was _____ percent. ANSWER: Based on CAPM, E(R) = .054 + 1.3(.112
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Unformatted text preview: .054) = .1294 Unexpected return : R E(R) = .148 .1294 = .0186 Systematic portion : [ R M E(R M )] = (.127 - .112) 1.3 = .015 1.3 = .0195 Unsystematic portion : [ R E(R)] [R M E(R M )] = (.148 .1294) (.127 - .112) 1.3 = .0186 .0195 = -.0009 The systematic portion is 1.95 percent and the unsystematic portion is -0.09 percent....
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This note was uploaded on 11/18/2011 for the course FIN 355 taught by Professor Phsiao during the Fall '08 term at S.F. State.

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