7.Consider a portfolio exhibiting an expected return of 22%in an economy where the riskless interest rate is 7%,the expected return on the market portfolio is 14%and the standard deviation of the return to the market portfolio is 0.18.Assuming that the portfolio is efficient,determine: (a) its beta (b) the standard deviation of its return Answer: (a) E(ri)-rf B[E(rM-ril 0.22-0.07 =B0.14-0.071 2.14=B b Use CML: 22 =0.07+[(0.17-0.07)/0.18]o 0.3 =0 8.During the most recent 3-year period,Tartar Inc.earned an average annualized rate of return of 14% and had an annualized standard deviation of 20%.The average risk-free rate was 4.5%per year.The average rate of return in the market index over that same period was 10%with a standard deviation of 15%.How well did Tartar Inc.perform on a risk adjusted basis? Answer: Compare their reward-to-risk ratios: Tartar Inc. Market 0.14-0.45)/0.2=0.475 0.10-0.045/0.15=0.367 On a risk adjusted basis,Tartar performed better than the market index. 13-1513-15 7. Consider a portfolio exhibiting an expected return of 22% in an economy where the riskless interest rate is 7%, the expected return on the market portfolio is 14% and the standard deviation of the return to the market portfolio is 0.18. Assuming that the portfolio is efficient, determine: (a) its beta (b) the standard deviation of its return Answer: (a) E(rj) – rf = β[E(rM) – rf] 0.22 – 0.07 = β[0.14 – 0.07] 2.14 = β (b) Use CML: .22 = 0.07 + [(0.17 – 0.07)/0.18]σ 0.3 = σ 8. During the most recent 3-year period, Tartar Inc. earned an average annualized rate of return of 14% and had an annualized standard deviation of 20%. The average risk-free rate was 4.5% per year. The average rate of return in the market index over that same period was 10% with a standard deviation of 15%. How well did Tartar Inc. perform on a risk adjusted basis? Answer: Compare their reward-to-risk ratios: Tartar Inc. Market (0.14 – 0.45)/0.2 = 0.475 (0.10 – 0.045)/0.15 = 0.367 On a risk adjusted basis, Tartar performed better than the market index