Compare the market risk of a 1-year T-Bill, Project A, Project B
Question: Compare the market risk of a 1-year T-Bill, Project A, Project B…
- Compare the market risk of a 1-year T-Bill, Project A, Project B, and equity in MSI. (Hint: Use the historical returns in Exhibit 13.2 to create a graph with market characteristic lines for a 1-year T-Bill, Project A, Project B, and equity in MSI.)
- What would happen to the overall risk of a well-diversified portfolio with an investment in a 1-Year T-Bill? Project A? Project B? Equity in MSI?
- What does the distance between the market characteristics line and the expected return of an investment indicate? Investment
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1-year S&P 500 Equity in
T-Bill Project A Project B Fund MSI
Year 1 7% -8% 18% -15% 0%
Year 2 7% 2% 23% 0% 5%
Year 3 7% 14% 7% 15% 10%
Year 2 7% 25% -3% 30% 15%
Year 5 7% 33% 2% 45% 20%
Note: these return distributions are fictitious and not mean to describe actual market conditions at the time you work this case.
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