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Numerical Questions on SAPM Oct 11

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komal Gupta
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12 views

Numerical Questions on SAPM Oct 11

Uploaded by

komal Gupta
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Practice Sheet-Numerical

1. Given two portfolios, A and B: Portfolio A has a return of 8%, a standard deviation of 5%, and a
risk-free rate of 2%. Portfolio B has a return of 10%, a standard deviation of 8%, and the same risk-
free rate. Calculate the Sharpe ratio for both portfolios and determine which one has a better risk-
adjusted performance.

2. Compare the Treynor ratios of two portfolios: Portfolio X has a return of 9%, a beta of 1.1, and a
risk-free rate of 2%, while Portfolio Y has a return of 12%, a beta of 1.5, and the same risk-free rate.
Which portfolio provides a better performance relative to systematic risk?

3. A portfolio has an actual return of 14%, a risk-free rate of 3%, a beta of 1.2, and the market return
is 10%. Calculate Jensen’s alpha for this portfolio.

4. If the risk-free rate is 3%, the expected market return is 8%, and a stock has a beta of 1.5, what is
the expected return of the stock according to the Capital Asset Pricing Model (CAPM)?

5. A stock has an expected return of 12%, the risk-free rate is 2%, and the market return is 10%.
What is the beta of the stock according to the CAPM model?

6. Assume a stock's return is influenced by two factors: the return on the market portfolio and the
return on an interest rate factor. The factor sensitivities (betas) for the stock are 1.2 for the market
portfolio and 0.5 for the interest rate factor. If the risk-free rate is 3%, the risk premium for the
market portfolio is 6%, and the risk premium for the interest rate factor is 2%, what is the expected
return of the stock using the Arbitrage Pricing Theory (APT) model?

7. A stock has an expected return of 10% and is influenced by three risk factors with the following
factor sensitivities (betas) and risk premiums:

• Factor 1: Beta = 0.8, Risk Premium = 5%

• Factor 2: Beta = 1.5, Risk Premium = 3%

• Factor 3: Beta = 0.6, Risk Premium = 2%

If the risk-free rate is 2%, does the stock's expected return align with the Arbitrage Pricing
Theory (APT) model?
8. Consider a portfolio with two assets, Asset X and Asset Y. Asset X has a standard deviation of
10% and a weight of 50% in the portfolio, while Asset Y has a standard deviation of 15% and a
weight of 50%. The correlation coefficient between the two assets is 0.3. Calculate the portfolio's
standard deviation.

9. Consider a stock whose returns depend on three possible states of the economy: a boom, a
stable economy, and a recession. The probability of these states and the corresponding returns are
given below:

State of Economy Probability Expected Return

Boom 0.30 20%

Stable Economy 0.50 10%

Recession 0.20 -5%

1. Calculate the expected return of stock.

2. Calculate the variance and standard deviation of the stock's returns to measure the risk.

10. Consider the following information about the returns of a stock based on the state of the
economy:

State of Economy Probability Return

Expansion 0.40 15%

Normal Growth 0.50 8%

Recession 0.10 -10%

1. Calculate the expected return of the stock.

2. Calculate the variance and standard deviation of the stock's returns.

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