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Financial Markets and Services

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See the attached problem.

1. I am considering a security with the following possible rates of return:

Probability Return (%)
0.30 9.5
0.15 12.0
0.25 15.0
0.30 16.0

Please calculate the expected rate of return and the standard deviation of the returns (round to the nearest dollar).

2.
Probability Return (%)
0.15 6
0.30 5
0.40 11
0.15 14

Please calculate the expected rate of return and its standard deviation. One year Treasury bills are currently paying 8.9%. Should you invest in the above security?

3. LMO Investments, Inc. is considering several investments. The rate on T-Bills is currently 6.75 percent, and the expected return for the market is 12 percent. What should be the required rates of return for each investment (Using the CAPM)?

Security Beta

A 1.40
B 0.75
C 0.80
D 1.20

Please show me the calculation process.

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Solution Summary

This solution is comprised of solution related with Financial Markets and Services.

Solution provided by:
Jayant Kumar, MBA
Education
  • MBA, Indian Institute of Finance
  • Bsc, Madras University
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