a) Fill in the empty boxes of the following Expected return E(r) Variance (0²) Standard Deviation (a) Covariance (OM, A) Correlation coefficient (PM b) Find Beta of market and Beta of asset A c) Is combination of both assets attractive
a) Fill in the empty boxes of the following Expected return E(r) Variance (0²) Standard Deviation (a) Covariance (OM, A) Correlation coefficient (PM b) Find Beta of market and Beta of asset A c) Is combination of both assets attractive
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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Question
Please answer questions according attached file
THANKS
Transcribed Image Text:A stock market analyst is considering building a portfolio of two assets (IPSA and CMPC). For this,
the analyst uses "Clapes UC Study" where probability of a recession scenario for Chile in 2023 is
estimated at 56%. The table below shows estimated returns of both assets for 2023 according
to scenarios presented. Also assume an annual risk-free rate of RF = 5.5%.
Scenario
No Recession
Recession
Market
Return (%)
15%
-6%
a) Fill in the empty boxes of the following table:
Expected return E(r)
Variance (0²)
Standard Deviation (o)
Covariance (0 M, A)
Correlation coefficient (PM, A)
Asset A
Return %
23%
9%
Asset A
Market
b) Find Beta of market and Beta of asset A.
c) Is combination of both assets attractive to build a portfolio. Explain
d) Assuming that CAPM model is valid, what would be required return of the risky asset A?
e) What would be expected return and variance of a portfolio with 40% invested in risky asset
A and other 60% invested in risk-free asset? Assumed CAPM model
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Why portfolio isn't attractive? Please explain on answer c)
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