A single mispriced asset has an alpha α = 4.0%, a beta β = 1.0 and unsystematic risk (variance) of 16.0%. The market ris
Posted: Sun Jul 03, 2022 12:57 pm
A single mispriced asset has an alpha α = 4.0%, a beta β = 1.0and unsystematic risk (variance) of 16.0%. The market risk premiumis 5.0% and the market’s Sharpe Ratio is 0.5.In constructing an optimal allocation between the mispriced assetand the market, what proportion of your investment would you placein the mispriced asset?
a.
20%
b.
15%
c.
10%
d.
5%
e.
The asset is not mispriced
a.
20%
b.
15%
c.
10%
d.
5%
e.
The asset is not mispriced