midterm practice 9

Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $70,000 or $200,000 with equal probabilities of .5. The alternative risk-free investment in T-bills pays 6% per year.a. If you require a risk premium of 8%, how much will you be willing to pay for the portfolio?b. Suppose that the portfolio can be purchased for the amount you found in (a). What will be the expected rate of return on the portfolio?c. Now suppose that you require a risk premium of 12%. What is the price that you will be willing to pay?d. Comparing your answers to (a) and (c), what do you conclude about the relationship between the required risk premium on a portfolio and the price at which the portfolio will sell?

Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $150,000 or $290,000 with equal probabilities of 0.5. The alternative risk-free investment in T-bills pays 3% per year. Required: a. If you require a risk premium of 7%, how much will you be willing to pay for the portfolio? b. Suppose that the portfolio can be purchased for the amount you found in (a). What will be the expected rate of return on the portfolio? c. Now suppose that you require a risk premium of 12%. What price are you willing to pay? Complete this question by entering your answers in the tabs below. Required A Required B Required C If you require a risk premium of 8%, how much will you be willing to pay for the portfolio? Note: Do not round your intermediate calculations. Round your answer to the nearest whole dollar amount. Price Required A Required B >

Consider a risky portfolio. The end - of - year cash flow derived from the portfolio will be either $70,000 or $200,000 with equal probabilities of 0.5. The alternative risk - free investment in T - bills pays 2% per year. Required: If you require a risk premium of 8%, how much will you be willing to pay for the portfolio? Suppose that the portfolio can be purchased for the amount you found in (a). What will be the expected rate of return on the portfolio? Now suppose that you require a risk premium of 12 % . What price are you willing to pay?

Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $70,000 or $195,000, with equal probabilities of 0.5. The alternative riskless investment in T-bills pays 4%. Required: a. If you require a risk premium of 8%, how much will you be willing to pay for the portfolio? (Round your answer to the nearest dollar amount.) Value of the Portfolio b. Suppose the portfolio can be purchased for the amount you found in (a). What will the expected rate of return on the portfolio be? (Do not round intermediate calculations. Round your answer to the nearest whole percent.) Rate of return % c. Now suppose you require a risk premium of 11%. What is the price you will be willing to pay now? (Round your answer to the nearest dollar amount.) Value of the portfolio

Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $70,000 or $200,000 with equal probabilities of .5. The alternative risk-free investment in T-bills pays 6% per year. If you require a risk premium of 8%, how much will you be willing to pay for the portfolio? Suppose that the portfolio can be purchased for the amount you found in (a). What will be the expected rate of return on the portfolio? Now suppose that you require a risk premium of 12%. What is the price that you will be willing to pay? Comparing your answers to (a) and (c), what do you conclude about the relationship between the required risk premium on a portfolio and the price at which the portfolio will sell?

What is the expected annual return of this portfolio?

Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $110,000 or $280,000 with equal probabilities of .5. The alternative risk-free investment in T-bills pays 6% per year.   a. If you require a risk premium of 4%, how much will you be willing to pay for the portfolio? (Round your answer to the nearest whole dollar amount.)     b. Suppose that the portfolio can be purchased for the amount you found in (a). What will be the expected rate of return on the portfolio? (Round your answer to the nearest whole number.)

5. Call Options II When you construct the replicating portfolio for the option in the previous question, how many dollars do you need to invest in the cash account? Please submit your answer rounded to three decimal places. For example, if your answer is -43.4567 then you should submit an answer of -43.457.

Suppose you are considering investing your entire portfolio in three assets A, B and C. You expect that after you invest, four possible mutually exclusive scenarios will occur, with associated returns (in %) for each of the three assets as listed below. The probability of each scenario is given below.   A B C Probabilities return  0.05 0.50% -3.60% 3.60% 0.35 0.60% 2.75% 0.15% 0.45 3.66% 1.45% 0.45% 0.15 -4.80% -0.60% 6.30% Find the expected returns and standard deviations of Asset A, B & C. (HINT: the expected return is given by the probability-weighted sum of returns in each scenario. The expected standard deviation is given by the square root of the probability-weighted sum of squared deviations from the expected return.) Is there any reason to invest in Asset A given its low expected return and high standard deviation?

Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $75,000with a probability of 25%, $125,000 with a probability of 50%, or $140,000 with a probability of 25%.The alternative risk-free investment in T-bills pays 4% per year. a) If you require a risk premium of 8%, how much will you be willing to pay for the portfolio?b) What is the Sharpe ratio of the portfolio if you can purchase it at the price calculated above?

You are going to invest $20,000 in a portfolio consisting of assets X, Y, and Z, as follows: Asset Annual Return Probability Beta Proportion X 10% 0.50 1.2 0.333 Y 8% 0.25 1.6 0.333 Z 16% 0.25 2.0 0.333 Given the information in Table 5.2, The beta of the portfolio in Table 8.2, containing assets X, Y, and Z is ________.   Select one: a. 1.6 b. 2.0 c. 1.5 d. 2.4

Suppose you have $2,000 to invest. The market portfolio has an expected return of 10.5 percent and a standard deviation of 16 percent. The risk-free rate is 3.75 percent.  How much should you invest in the risk-free asset if you wish to have a 15 percent return on the portfolio?

Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $110,000 or $280,000 with equal probabilities of .5. The alternative risk-free investment in T-bills pays 6% per year.  Now suppose that you require a risk premium of 10%. What is the price that you will be willing to pay? (Round your answer to the nearest whole dollar amount.)

Calculate the price of call option and put option.

The investor has R60,000 to invest. R15,000 will be invested into the market portfolio, R10,000 into asset A and R25,000 into asset B. The balance will be invested into the risk-free asset. The beta for asset A and asset B is 0.90 and 1.2 respectively. What is the portfolio beta? What is the correct answer?  A. 0.09  B. 0.90 C. 0.91  D. 0.92

Verify ASAP

Suppose that a portfolio consist of three securities: A, B and C with expected rates of return of 5%, 9% and 14% respectively. Find the expected rate of return on each of the following two portfolios of these securities: Portfolio A where wA = WB = Wc Portfolio B where wA = WB = 2wc Assume that you currently have $10,000 and that the risk of each portfolio is 10%. Which portfolio which you choose and why? b) How much will you have invested in each security in each instance? c) What is the expected value of the portfolio one year from today? d) What is the expected return on the portfolio in $ terms, assuming no taxes nor fees?

Suppose that you have $1 million and the following two opportunities from which to construct a portfolio: a. Risk-free asset earning 13% per year. b. Risky asset with expected return of 27% per year and standard deviation of 40%. If you construct a portfolio with a standard deviation of 28%, what is its expected rate of return? (Do not round your intermediate calculations. Round your answer to 1 decimal place.) Expected return on portfolio %

2. Consider the following investment: A portfolio that pays a 30% rate of return with a probability of 60% or a 15% rate of return with a probability of 40%. If you invest $50,000 in this portfolio, what would be your expected profit?

- You have 100.000$ to invest in either Stock D, Stock F, or a risk-free asset. You must invest all of your money. Your goal is to create a portfolio that has an expected return of 10.5 percent. If D . has an expected return of 13.2 percent, F has an expected return 9.5 percent, and the risk-free rate is 3.8 percent, and if you invest 50.000$ in Stock D, how much will you invest in Stock F?

You have just invested in a portfolio of three stocks. The amount of money that you invested in each stock and its beta are summarized below. Stock. Investment A B C $224,000 336,000 560,000 Beta of the portfolio Beta Expected rate of return 1.50 0.60 Calculate the beta of the portfolio and use the Capital Asset Pricing Model (CAPM) to compute the expected rate of return for the portfolio. Assume that the expected rate of return on the market is 16 percent and that the risk-free rate is 8 percent. (Round beta answer to 3 decimal places, e.g. 52.750 and expected rate of return answer to 2 decimal places, e.g. 52.75%.) 1.35 do % SUPP

You have just invested in a portfolio of three stocks. The amount of money that you invested in each stock and its beta are summarized below. Stock A B C Investment $198,000 297,000 495,000 Beta 1.45 0,60 Beta of the portfolio Expected rate of return 1.30 Calculate the beta of the portfolio and use the Capital Asset Pricing Model (CAPM) to compute the expected rate of return for the portfolio. Assume that the expected rate of return on the market is 14 percent and that the risk-free rate is 8 percent. (Round beta answer to 3 decimal places, e.g. 52.750 and expected rate of return answer to 2 decimal places, e.g. 52.75%.) %