1.Investors demand higher rates of expected return onstocks with more variation
ID: 2662478 • Letter: 1
Question
1.Investors demand higher rates of expected return onstocks with more variation in expected returns2.An investor’s portfolio that has $10,000in T-Bills and $20,000 in the market portfolio will havea beta of 2
true or false, please explain 1.Investors demand higher rates of expected return onstocks with more variation in expected returns
2.An investor’s portfolio that has $10,000in T-Bills and $20,000 in the market portfolio will havea beta of 2
2.An investor’s portfolio that has $10,000in T-Bills and $20,000 in the market portfolio will havea beta of 2
true or false, please explain
Explanation / Answer
Answer: 1.Investors demand higher rates of expected return on stockswith more variation in expected returns (Statement is TRUE) but is may be false for RiskAvoiding Individual, because that individual may demand lowerreturn with low risk and low variation in expected return. 2.An investor’s portfolio that has $10,000 in T-Billsand $20,000 in the market portfolio will have a beta of 2 False! It is not necessary that market have a beta of 2, it may be, butmarket beta is not attached with individual's portfolio in T-Billsetc! Market beta of 2 means, the assets or portfolio of $20,000 ispositively correlated with market, if market goes up 10% then thisstock will go up (increase return) by twice or 20%.
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