Your investment portfolio consists of $15,000 invested in only one stock—Amazon. Suppose the risk-free rate is 5%, Amazon stock has an expected return of 12% and a volatility of 40%, and the market...


Your investment portfolio consists of $15,000 invested in only one stock—Amazon. Suppose the risk-free rate is 5%, Amazon stock has an expected return of 12% and a volatility of 40%, and the market portfolio has an expected return of 10% and a volatility of 18%. Under the CAPM assumptions,


a. What alternative investment has the lowest possible volatility while having the same expected return as Amazon? What is the volatility of this investment?



To

create an

alternative investment that has the lowest possible volatility while having the same expected return as​ Amazon, we use the following​ strategy:


​Sell:________ worth of Amazon stock. ​ (Round to the nearest​ dollar.)


​Borrow: ______ ​at the​ risk-free rate. ​ (Round to the nearest​ dollar.)


​Buy: _________ worth of the market portfolio. ​(Round to the nearest​dollar.)


​Buy: _________ worth of the ​risk-free investment. ​ (Round to the nearest​dollar.)




Additional Info: I know the processes of deriving the Beta and volatility. However, I want to know how to compute the calculations necessary to solve the table above.



Jun 05, 2022
SOLUTION.PDF

Get Answer To This Question

Related Questions & Answers

More Questions »

Submit New Assignment

Copy and Paste Your Assignment Here