National Economics UniversityFIN 400 Lets assume you have a portfolio generating 10% return (a standard deviation of 4% and beta of 1.5) this year. And you wonder whether your portfolio performance is good and would like to compare it with an estimate from CML (Capital Market Line). Currently 10 year Treasury bond produces 5% YTM (yield to maturity), a market portfolio (Rm, efficient portfolio) shows an annual return of 12% and a standard deviation of 3%. Using this information, please answer the next 4 questions. Estimate an expected return with CML? Estimate Sharpe’s ratio? Estimate Treynor’s ratio? Estimate market risk as part of total risk, not beta? Please compare CAPM to Fama French three factor model. What are differences? Define Self attribution. Define Anchoring bias. Under CAPM (Capital Asset Pricing Model), all securities may be on SML (security market line). If there is a securities generating actual return below SML, what it means to us in terms of current valuation?

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National Economics UniversityFIN 400 Lets assume you have a portfolio generating 10% return (a standard deviation of 4% and beta of 1

Finance May 19, 2021

National Economics UniversityFIN 400

Lets assume you have a portfolio generating 10% return (a standard deviation of 4% and beta of 1.5) this year. And you wonder whether your portfolio performance is good and would like to compare it with an estimate from CML (Capital Market Line). Currently 10 year Treasury bond produces 5% YTM (yield to maturity), a market portfolio (Rm, efficient portfolio) shows an annual return of 12% and a standard deviation of 3%. Using this information, please answer the next 4 questions.

Estimate an expected return with CML?
Estimate Sharpe’s ratio?

Estimate Treynor’s ratio?

Estimate market risk as part of total risk, not beta?
Please compare CAPM to Fama French three factor model. What are differences?
Define Self attribution.
Define Anchoring bias.
Under CAPM (Capital Asset Pricing Model), all securities may be on SML (security market line). If there is a securities generating actual return below SML, what it means to us in terms of current valuation?

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