Consider the single factor APT. Portfolio A has a beta of 1.5 and an expected return of 19%. Portfolio B has a beta of 0.8 and an expected return of 15%. The risk-free rate of return is 8%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio and a long position in portfolio. Multiple Choice AA AB B 0,8

Consider the single factor APT. Portfolio A has a beta of 1.5 and an expected return of 19%. Portfolio B has a beta of 0.8 and an expected return of 15%. The risk-free rate of return is 8%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio and a long position in portfolio. Multiple Choice AA AB B 0,8

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Assume the APT equation for portfolios A and B with the following system of equations: E[rA] = λ0 + (λ1)3 + (λ2)0.2 = 11.0 E[rB] = λ0 + (λ1)2 + (λ2)1 = 13.0 Assume the following: . The risk free rate is λ0 = Rf = 5 . The expected return on the market portfolio is RM = 10 . Expected returns are consistent with the CAPM. . (hint: note that λ1 = E[RA] − Rf and λ2 = E[RB] − Rf ). Answer the following: (a) What are λ1 and λ2? (b) What is the CAPM β associated with the pure portfolio associated with factor 1? (c) What is the CAPM β associated with the pure portfolio associated with factor 2?
Consider a single factor APT. Portfolio A has a beta of 2.0 and an expected return of 22%. Portfolio B has a beta of 1.5 and an expected return of 17%. The risk-free rate of return is 4%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio __________ and a long position in portfolio _______. A. A; the riskless asset B. B; B C. A; A D. A; B E. B; A
Use the following CAPM equation for a portfolio to answer the questions that follow:E(RP) = RF + βP (RM – RF) = 1 + 0.8 (5 – 1) = 4.2% a) Is the portfolio defensive or aggressive. Why? b) If the actual portfolio return is 6%, what is the portfolio’s alpha?
Consider the single factor APT. Portfolio A has a beta of 1.8 and an expected return of 22%. Portfolio B has a beta of 6 and an expected return of 18%. The risk-free rate of return is 12%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio. and a long position in portfolio Multiple Choice A;B BB A:A BA
Consider the following information for four portfolios, the market, and the risk-free rate (RFR): Portfolio Return Beta SD A1 0.15 1.25 0.182 A2 0.1 0.9 0.223 A3 0.12 1.1 0.138 A4 0.08 0.8 0.125 Market 0.11 1 0.2 RFR 0.03 0 0 Refer to Exhibit 18.6. Calculate the Jensen alpha Measure for each portfolio. a. A1 = 0.014, A2 = -0.002, A3 = 0.002, A4 = -0.02 b. A1 = 0.002, A2 = -0.02, A3 = 0.002, A4 = -0.014 c. A1 = 0.02, A2 = -0.002, A3 = 0.002, A4 = -0.014 d. A1 = 0.03, A2 = -0.002, A3 = 0.02, A4 = -0.14 e. A1 = 0.02, A2 = -0.002, A3 = 0.02, A4 = -0.14
Consider the multifactor model APT with three factors. Portfolio A has a beta of 0.8 on factor 1, a beta of 1.1 on factor 2, and a beta of 1.25 on factor 3. The risk premiums on the factor 1, factor 2, and factor 3 are 3%, 5%, and 2%, respectively. The risk-free rate of return is 3%. The expected return on portfolio A is __________ if no arbitrage opportunities exist. A. 23.0% B. 16.5% C. 13.4% D. 13.5%
You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset: 8p 1.25 Portfolio X Y Z Market Risk-free Rp 12% Information ratio 11 8 10 4 S24499 op 29% 14 19 1.10 0.75 1.00 0 4 Assume that the tracking error of Portfolio X is 9.2 percent. What is the information ratio for Portfolio X? Note: Do not round intermediate calculations. Round your answer to 4 decimal places.
Consider two well-diversified portfolios: Portfolio 1 has an expected return of 8% and a beta of 0.80 while Portfolio 2 has an expected return of 13% and a beta of 1.50. If the risk-free rate is 1.5%, which portfolio would a rational risk-averse investor prefer and why? O A. Portfolio 2 because it has the higher reward to risk ratio. O B. Portfolio 1 because it has the higher reward to risk ratio. OC. Portfolio 2 because it has the higher reward. O D. Portfolio 1 because it has the lower risk.
If the simple CAPM is valid and all portfolios are priced correctly, which of the situations below is possible? Consider each situation independently, and assume the risk-free rate is 5%. A) Expected Portfolio Return. 18% 18% A Market (8) Expected Standard Portfolio Return Deviation 219 168 A Market C) Expected Portfolio Return 218 168 A Market D) Portfolio A Market Beta 1.1 1.0 Expected Return 27.14 18% 118 198 Beta 1.1 1.0 Beta 1.7 1.0
Consider the single factor APT. Portfolio A has a beta of 1.5 and an expected return of 20 %. Portfolio B has a beta of 0.7 and an expected return of 16%. The risk - free rate of return is 8%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio and a long position in portfolio
You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset: Rp 15.0% 14.0 8.3 11.2 4.8 Portfolio X Y Z Market Risk-free op Portfolio X Y Z Market 31% 26 16 21 0 вр A What are the Sharpe ratio, Treynor ratio, and Jensen's alpha for each portfolio? (A negative value should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Round your rati answers to 5 decimal places. Enter your alpha answers as a percent rounded to 2 decimal places.) Sharpe Ratio 32.90323 35.38462 21.87500 1.85 1.25 .85 1.00 0 Treynor Ratio 5.51351 7.36000 4.11765 Jensen's Alpha -1.64% 1.20 % -1.94% %
The risk free rate is 3%. The optimal risky portfolio has an expected return of 9% and standarddeviation of 20%. Answer the following questions.a) Assume the utility function of an investor is U = E(r) − 0.5Aσ2. What is condition ofA to make the investors prefer the optimal risky portfolio than the risk free asset? b) Assume the utility function of an investor is U = E(r) − 2.5σ2. What is the expectedreturn and standard deviation of the investor’s optimal complete portfolio?

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