*** NOTE: No copying answers from other questions in this system are incorrect.

Question

*** NOTE: No copying answers from other questions in this system are incorrect. IT IS VERY IMPORTANT TO COMPLETE THE ENTIRE EXERCISE. INCLUDE ALL CALCULATIONS. THANK

Problem 1:

The company Zarabel International is a financial instrument where the risk-free return

market is 7.25% and has a beta of 1.25. Determines instrument performance financial. (5 points)

Problem 2:

Determines the beta associated with a financial instrument whose return is 9.25%, if you have a

risk-free yield of 5.5% and a yield of 13.55% of the market.

Problem 3:

Evaluate the following cases of assets:

1-What would happen to the performance of each asset if it reflects a 20% increase in performance

From the market?

2. What would happen to the performance of each asset if it reflects a 20% decrease in market performance?

3. If the market performance increased in the future, how active you prefer? Why?

4. If the market yield decrease in the future, how active you prefer? Why?

*** NOTE: No copying answers from other questions in this system are incorrect. IT IS VERY IMPORTANT TO COMPLETE THE ENTIRE EXERCISE. INCLUDE ALL CALCULATIONS. THANK

Explanation / Answer

Problem 1 ) Instrument performance financial = Return = Risk free rate + beta(Market return - risk free rate)

                                                                              = 7.25+ 1.25(10-7.25)

                                                                              = 10.6875%

        

Problem 2) using CAPM we can calculate the Beta

Return = Risk free return + beta(Market return -risk free return)

    9.25%        = 5.5% + beta( 13.55-5.5)

         Beta = 9.25-5.5 / 8.05

=    0.4658

Problem 3)

1)If 20% increase in performance From the market , then the gain is each asset in percentage is as follows

2) IF 20% decrease in market performance

3) If the market performance increased in the future THEN IT IS BETTER TO INVEST IN ASSET B AS THE BETA IS 1.5 IT WILL PERFORM MORE THAN THE MARKET

4 ) If the market yield decrease in the future , THEN IT IS BETTER TO PIC ASSET C AS IT HAS INVERSE RELATIONSHIP WITH MARKET

Asset BETA GAIN/(LOSS) IN PERCENTAGE A 0.25 5 B 1.5 30 C -0.25 -5 D 0.99 19.8

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