1. Consider 3 stocks A, B, and Cand the risk-free rate RF=0.5%. The logarithmic rates of return are asfollows:6.RA:(%)RB.(%)Ret(%)6.-289.3.8-1-5a) Compute the mean returns the holding returns for the entire period.b) Determine the risk of each stock.c) Measure the correlation between A and B, A and C, and B and C.d) Compute the expected return and risk for the following portfolios:P1:40% from the budget was invested in A and the rest of the money in BP2: XA-40%, xc-60%• P3: XA=30%, xp=30%, xc=40%P4: Xp3=70%, xRE =30%Determine the contribution of each stock to the above portfolios return and risk.2. Download the daily closing prices for two stocks during the past year (2021) and compute thefollowing:a) The expected rate of return for each stock.b) The risk of each stock.c) The correlation coefficient between the two stocks' rates of return.d) The expected return and risk of an equally weighted portfolio.6 0074?I426m674

Hi, since you have posted multiple questions and the first uestion has multiple sub-parts. We will…

1. Consider 3 stocks A, B, and C and the risk-free rate RF=0.5%. The logarithmic rates of return are as follows: 4 5 6. RA1(%) RB.(%) Rc:(%) 6. 6. -2 8. 9. 3. 6 4 8 3 -1 -5 a) Compute the mean returns the holding returns for the entire period. b) Determine the risk of each stock. c) Measure the correlation between A and B, A and C, and B and C. d) Compute the expected return and risk for the following portfolios: • P1:40% from the budget was invested in A and the rest of the money in B P2: XA-40%, xc=60% • P3: XA=30%, xg=30%, xc=40% P4: Xp3=70%, xRF=30% Determine the contribution of each stock to the above portfolios return and risk.

1. Consider 3 stocks A, B, and C and the risk-free rate RF=0.5%. The logarithmic rates of return are as follows: 4 5 6. RA1(%) RB.(%) Rc:(%) 6. 6. -2 8. 9. 3. 6 4 8 3 -1 -5 a) Compute the mean returns the holding returns for the entire period. b) Determine the risk of each stock. c) Measure the correlation between A and B, A and C, and B and C. d) Compute the expected return and risk for the following portfolios: • P1:40% from the budget was invested in A and the rest of the money in B P2: XA-40%, xc=60% • P3: XA=30%, xg=30%, xc=40% P4: Xp3=70%, xRF=30% Determine the contribution of each stock to the above portfolios return and risk.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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1. Consider 3 stocks A, B, and C and the risk-free rate RF=0.5%. The logarithmic rates of return are as follows: 1 4 8. RA1(%) RB,(%) Rc.(%) -2 2 7 9 3. 7 4. 8. 3. -1 -5 a) Compute the mean returns the holding returns for the entire period. b) Determine the risk of each stock. c) Measure the correlation between A and B, A and C, and B and C. d) Compute the expected return and risk for the following portfolios: •P1:40% from the budget was invested in A and the rest of the money in B • P2: XA-40%, xc=60% • P3: XA-30%, Xg=30%, xC-40% P4: Xp3-70%, xRF=30%
Consider information given in the table below and answers the question asked thereafter: State Probability return on stock A Return on stock B A 0.15 10% 9% B 0.15 6% 15% C 0.10 20% 10% D 0.18 5% -8% E 0.12 -10% 20% F 0.30 8% 5% Calculate covariance and coefficient of correlation between the returns of thestocks A and B.v. Now suppose you have $100,000 to invest and you want to a hold a portfoliocomprising of $45,000 invested in stock A and remaining amount in stock B.Calculate risk and return of your portfolio.
QG. The following information is available about the stocks of two companies A and B: Stock A Stock B Expected Return (%) Probability -5 12 15 20 0.05 0.55 0.35 0.05 Expected Return (%) Probability 5 15 18 20 0.05 0.65 0.20 0.10 Stock Standard Deviation of Returns (%) A B 25 35 The coefficient of correlation between the returns on A and B is 0.05. A portfolio is constructed by allocating the funds between A and B in the ratio of 2:3. Calculate the expected return on the portfolio. b. Calculate the portfolio risk.
Suppose that the index model for stocks A and B is estimated from excess returns with the following results:RA = 3% + .7RM + eARB = −2% + 1.2RM + eBσM = 20%; R-squareA = .20; R-squareB = .12What is the covariance between each stock and the market index?
Plz show the formula step by step. There is the following table shows the probabilities of occurrence of 3 states and the expected rate of returns on stocks A and B State Probability Expected rate ofReturns on Stock A Expected rate ofReturns on Stock B Boom 0.5 0.25 0.20 Neutral 0.3 0.15 0.10 Recession 0.2 0.05 0.02 (A) Calculate the expected rates of returns and standard deviations of stocks A and B. The colleague has given you his forecasts of stocks C and D as follows: State Probability Expected rate ofReturns on Stock C Expected rate ofReturns on Stock D Boom 0.7 0.40 -0.10 Bust 0.3 -0.05 0.30 She would like to invest 80% of his money in stock C and 20% of her money in stock D to construct a portfolio.(B) Calculate the portfolio's expected rate of returns and its standard deviation
2. Suppose that three stocks (A, B, and C) and two common systematic risk factors (1 and 2) have the following relationship: E(RA) = (0.80) F1 + (0.90) F2 E(RB)= (-0.20) F1 + (1.30) F2 E(RC)= (1.80) F1 + (0.50) F2 a. Compute the expected returns if F1 = 4% and F2 = 5% b. Assuming that all three stocks are currently priced at $35 and will not pay a dividend over the next year, compute the expected prices a year from now c. Now, suppose you "know" that in one year the actual prices of stocks A, B, and C will be $37.20, $37.80, and $38.50. How can you best take advantage of what you consider to be a market mispricing? d. How will the current prices adjust?
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 0.03 + 0.7 RM + eA RB = -0.02+ 1.2 RM + eB σM =0.20; R-square A = 0.25 R-square B = 0.20 What is the standard deviation of A & B, respectively? Group of answer choices 0.54, 0.28 0.28, 0.54 0.45, 0.50 0.50, 0.45
2. Suppose that the market model for stocks A and B is estimated with the following results: RA = 1% +0.9*RM+EA RB = -2% + 1.1*RM+EB The standard deviation of the markets returns is 20% and firm specific risk (standard deviation) equals 30% for A and 10% for B. a. Compute the risk (standard deviation) of each stock and the covariance between them. Suppose we form an equally weighted portfolio of stocks A and B. What will be the nonsystematic standard deviation of that portfolio? b.
Suppose the expected returns and standard deviations of Stocks A and B are E(RA) = .092, E(RB) = 152, đA = .362, and Og = .622. %3D Calculate the expected return of a portfolio that is composed of 37 percent A and 63 percent B when the correlation between the returns on A and B is .52. (Do not a-1. round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Calculate the standard deviation of a portfolio that is composed of 37 percent A and 63 percent B when the correlation coefficient between the returns on A and B is .52. а-2. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Calculate the standard deviation of a portfolio with the same portfolio weights as in h part (a) when the correlation coefficient between the returns on A and B is -.52. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a-1.…
Suppose that three stocks (A, B, and C} and two common risk factors (1 and 2) have the following relationship: E(RA) = (1.1)A1 + (0.8)A2 E(RB) = (0.7)A1 + (0.6)A2 E(RC) = (0.3)A1 + (0.4)A2 a. If A1 = 4 percent and A2 = 2 percent, what are the prices expected next year for each of the stocks? Assume that all three stocks currently sell for $30 and will not pay a dividend in the next year. b. Suppose that you know that next year the prices for Stocks A, B, and C will actually be $31.50, $35.00, and $30.50. Create and demonstrate a riskless, arbitrage investment to take advantage of these mispriced securities. What is the profit from your investment? You may assume that you can use the proceeds from any necessary short sale. Problems 13 and 14 refer to the data contained in Exhibit 7.23, which lists 30 monthly excess returns to two different actively managed stock portfolios (A and B) and three different common risk factors (1, 2, and 3). {Note: You may find it…
You are given the following information: Stock Expected return (in %) σ (in %) A 10 10 B 5 5 The covariance between these returns is 16% ². The risk-free rate is 6%.
Consider the rate of return of stocks ABC and XYZ. Year rABC rXYZ 1 20 % 28 % 2 8 11 3 16 19 4 4 1 5 2 −9 a. Calculate the arithmetic average return on these stocks over the sample period. b. Which stock has greater dispersion around the mean return? A. ABC B. XYZ c. Calculate the geometric average returns of each stock. What do you conclude? (Do not round intermediate calculations. Round your answers to 2 decimal places.) d. If you were equally likely to earn a return of 20%, 8%, 16%, 4%, or 2%, in each year (these are the five annual returns for stock ABC), what would be your expected rate of return? (Do not round intermediate calculations.) e. What if the five possible outcomes were those of stock XYZ? f. Given your answers to (d) and (e), which measure of average return, arithmetic or geometric, appears more useful for predicting future performance? A. Arithmetic B. Geometric

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