Solution_Practice Problems for Midterm

A welldiversified portfolio on the other hand only

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Unformatted text preview: basis of the σY 0.30 Sharpe ratio. 13. The alpha of Fund X is α X = E ( RX ) − RF − β X ( E ( RM ) − RF ) = 0.13 − 0.05 − 1.5 × (0.10 − 0.05) = 0.005 = 0.5% Similarly, the alpha of Fund Y is α Y = E ( RY ) − RF − βY ( E ( RM ) − RF ) = = 0.12 − 0.05 − 1 × (0.10 − 0.05) 0.02 = 2% Therefore, Fund Y has a higher alpha than Fund X. 14. The CAPM does not hold in the data, beca...
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