a. Calculate the sharpe ratios for the market portfolio and portfolio A. (Round
ID: 2759782 • Letter: A
Question
a. Calculate the sharpe ratios for the market portfolio and portfolio A. (Round your answers to 2 decimal places.) Sharpe Ratio Market portfolio Portfolio A
b. If the simple CAPM is valid, state whether the above situation is possible? Yes or No
57) Consider the CAPM. The risk-free rate is 5%, and the expected return on the market is 17%. What is the expected return on a stock with a beta of 1.5?
a) 13.0% b) 31% c) 28.0% d)23.0%
58) A big increase in government spending is an example of a _________.
a)positive supply shock b)positive demand shock c)negative demand shock d)negative supply shock
62) According to the CAPM, what is the market risk premium given an expected return on a security of 9.8%, a stock beta of 1.2, and a risk-free interest rate of 5%?
a) 4.00% b)6.60% c)6.00% d)5.00%
53) Consider the following information:Explanation / Answer
(53) (a) Computation of sharpe ratio.We have,
For Market portfolio,
Sharpe ratio = ( Market return - Risk-free rate) / Standard deviation
Sharpe ratio = (12.4 - 5.0) / 32 = 0.2312*100 = 23.12%
For Portfolio A,
Sharpe ratio = (10.4 - 5.0) / 21 = 0.2571*100 = 25.71%
(b) According to CAPM,
Required rate of return = Risk-free return + beta( market return - risk-free return)
For market portfolio,
12.4 = 5 + beta ( 12.4 - 5 )
beta = 1
For portfolio A,
10.4 = 5 + beta (10.4 - 5)
beta = 1
Yes. this situation is possible.
(57) Expected rate of return = Risk-free return + beta( market return - risk-free return)
Expected rate of return = 5 + 1.5(17 - 5) = 23.0%
(58) A big increase in government spending is an example of a postive demand shock.
(59) Expected rate of return = Risk-free return + beta x risk premium
9.8 = 5 + 1.2 risk premium
1.2Risk premium = 4.8
Risk-premium = 4.8/1.2 = 4.00%
(a) 4.00%
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