Fin 534 week 4 homework chapter 6


FIN 534 Week 4 Homework Chapter 6

 

1. Which of the forthcoming statements is CORRECT?

a. If you add ample randomly separated supplys to a portfolio, you can perfectly elucidate all of the bargain destroy from the portfolio.

b. If you were odious to endueing in publicly traded beggarly supplys, yet you wanted to minimize the destroyiness of your portfolio as measured by its beta, then according to the CAPM system you should endue an resembling whole of coin in each supply in the bargain. That is, if there were 10,000 traded supplys in the earth, the meanest destroyy potential portfolio would compmelt some shares of each one.

c. If you formed a portfolio that consisted of all supplys delay betas hither than 1.0, which is about half of all supplys, the portfolio would itself possess a beta coefficient that is resembling to the weighted mediocre beta of the supplys in the portfolio, and that portfolio would possess hither destroy than a portfolio that consisted of all supplys in the bargain.

d. Bargain destroy can be elucidated by forming a bulky portfolio, and if some Treasury bonds are held in the portfolio, the portfolio can be made to be perfectly destroyless.

e. A portfolio that consists of all supplys in the bargain would possess a required render that is resembling to the destroyhither blame.

 

2. Jane has a portfolio of 20 mediocre supplys, and Dick has a portfolio of 2 mediocre supplys. Gorgeous the bargain is in makeweight, which of the forthcoming statements is CORRECT?

a. Jane's portfolio obtain possess hither diversifiable destroy and so hither bargain destroy than Dick's portfolio.

b. The required render on Jane's portfolio obtain be inferior than that on Dick's portfolio consequently Jane's portfolio obtain possess hither whole destroy.

c. Dick's portfolio obtain possess further diversifiable destroy, the identical bargain destroy, and thus further whole destroy than Jane's portfolio, but the required (and forecasted) renders obtain be the identical on twain portfolios.

d. If the two portfolios possess the identical beta, their required renders obtain be the identical, but Jane's portfolio obtain possess hither bargain destroy than Dick's.

e. The forecasted render on Jane's portfolio must be inferior than the forecasted render on Dick's portfolio consequently Jane is further heterogeneous.

 

3. Supply X has a beta of 0.7 and Supply Y has a beta of 1.3. The plummet intermission of each supply's renders is 20%. The supplys' renders are dogged of each other, i.e., the apposition coefficient, r, betwixt them is naught. Portfolio P consists of 50% X and 50% Y. Loving this counsel, which of the forthcoming statements is CORRECT?

a. Portfolio P has a plummet intermission of 20%.

b. The required render on Portfolio P is resembling to the bargain destroy bounty (rM − rRF).

c. Portfolio P has a beta of 0.7.

d. Portfolio P has a beta of 1.0 and a required render that is resembling to the destroyhither blame, rRF.

e. Portfolio P has the identical required render as the bargain (rM).

 

4. Which of the forthcoming statements is CORRECT?

a. When diversifiable destroy has been heterogeneous far, the intrinsic destroy that sweepings is bargain destroy, which is true for all supplys in the bargain.

b. Portfolio substitute reduces the variability of renders on an sepatrounce supply.

c. Destroy refers to the luck that some hostile adventure obtain happen, and a chance distribution is perfectly picturesquely by a listing of the likelihoods of hostile adventures.

d. The SML relates a supply's required render to its bargain destroy. The tower and arrest of this direction cannot be inferior by the firms' managers, but managers can wave their firms' positions on the direction by such actions as changing the firm's high texture or the pattern of goods it employs.

e. A supply delay a beta of -1.0 has naught bargain destroy if held in a 1-supply portfolio.

 

5. Which of the forthcoming statements is CORRECT?

a. If Reciprocal Fund A held resembling wholes of 100 supplys, each of which had a beta of 1.0, and Reciprocal Fund B held resembling wholes of 10 supplys delay betas of 1.0, then the two reciprocal funds would twain possess betas of 1.0. Thus, they would be resemblingly destroyy from an endueor's standpoint, gorgeous the endueor's simply asset is one or the other of the reciprocal funds.

b. If endueors befit further destroy disinclined but rRF does not substitute, then the required blame of render on high-beta supplys obtain melt and the required render on low-beta supplys obtain dismiss, but the required render on an mediocre-destroy supply obtain not substitute.

c. An endueor who holds fair one supply obtain generally be unprotected to further destroy than an endueor who holds a portfolio of supplys, gorgeous the supplys are all resemblingly destroyy. Since the holder of the 1-supply portfolio is unprotected to further destroy, he or she can forecast to win a better blame of render to remunerebuke for the important destroy.

d. There is no discuss to reckon that the tower of the comply incurvation would possess any pi on the tower of the SML.

 

e. Assume that the required blame of render on the bargain, rM, is loving and urban at 10%. If the comply incurvation were upward sloping, then the Security Bargain Direction (SML) would possess a steeper tower if 1-year Treasury securities were used as the destroy-free blame than if 30-year Treasury bonds were used for rRF.