???APUS CLE : FINC600 D00 ×??McGraw-Hill Education c USAJOBS //newconnect.mheduc

Question

???APUS CLE : FINC600 D00 ×??McGraw-Hill Education c USAJOBS //newconnect.mheducation.com/flow/connect.html ome to PetersoLogin American Pu x a Amazon.com C x ms You have been provided the following data on the securities of three firms, the market portfolio, and the risk-free as o. Fill in the missing values in the table. (Leave no cells blank- be certain to enter O wherever required. Do not ro calculations and round your answers to 2 decimal places, e.g., 3216.) Standard Deviation Security Expected Return Correlation* 113 53 118 12 28 . 89 Firm 8 Firm C 1.44 . 69 . 20 32 market

Explanation / Answer

i). pi,m = Bi(Std. dev. market)/(Std. dev. i)

= 0.89*0.20/0.28 = 0.64

ii). pi,m = Bi(Std. dev. market)/(Std. dev. i)

0.47 = 1.44*0.2/(Std. dev. i)

Std. dev. i = 0.288/0.47 = 0.61

iii). pi,m = Bi(Std. dev. market)/(Std. dev. i)

0.32 = Bi*0.2/0.69

Bi = 0.32/0.29 = 1.104

iv). Market Correlation = 1(with itself)

v). Beta of the market portfolio is 1

vi). Standard deviation of risk-free asset = 0

vii). Correlation between the risk-free asset and market portfolio = 0

viii). Beta of the risk-free asset = 0

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