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BF 722 Chapter 18 Problems

BF 722 Chapter 18 Problems - of these portfolios to your...

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BF 722 Chapter 18 Problems 5. Based on current dividend yields and expected capital gains, the expected rates of return on portfolios A and B are 11% and 14% respectively. The beta of A is .8 while that of B is 1.5. The T-bill rate is currently 6%, while the expected rate of return of the S&P 500 index is 12%. The standard deviation of portfolio A is 10% annually, while that of B is 31% and that of the index is 20%. a. If you currently hold a market index portfolio, would you choose to add either
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Unformatted text preview: of these portfolios to your holdings? Explain. b. If instead you could invest only in bills and one of these portfolios, which would you choose? 10. During a particular year, the T-bill rate was 6%, the market return was 14%, and a portfolio manager with beta of .5 realized a return of 10%. Evaluate the manager based on the portfolio alpha....
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