1. Consider the returns of two shares, A and B, under three possible scenarios: Scenario Stock A Stock B I II -50% 6% 19% Probability 8% III 15% -1% 28% 23% 69% Compute (a) the expected returns of the stocks A and B; (b) the standard deviation of the returns of the stocks A and B; (c) how can you find the minimum variance portfolio? Show the method and provide the weights; (d) the expected return and the standard deviation of the portfolio where the wealth allocated to the A stock is three times that of the B stock. (e) Assuming the risk free rate is equal to 5% write the equation of the Capital Allocation Line for the portfolio in point (d). What does the slope represents? A

1. Consider the returns of two shares, A and B, under three possible scenarios: Scenario Stock A Stock B I II -50% 6% 19% Probability 8% III 15% -1% 28% 23% 69% Compute (a) the expected returns of the stocks A and B; (b) the standard deviation of the returns of the stocks A and B; (c) how can you find the minimum variance portfolio? Show the method and provide the weights; (d) the expected return and the standard deviation of the portfolio where the wealth allocated to the A stock is three times that of the B stock. (e) Assuming the risk free rate is equal to 5% write the equation of the Capital Allocation Line for the portfolio in point (d). What does the slope represents? A

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter3: Risk And Return: Part Ii

Section: Chapter Questions

Problem 3P: Two-Asset Portfolio Stock A has an expected return of 12% and a standard deviation of 40%. Stock B...

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Consider the following probability distribution for stocks A and B: Table 4 Probability Distribution for Stocks A and B State Probability Return on Stock A Return on Stock B 1 0.1 10% 8% 2 0.2 13% 7% 3 0.2 12% 6% 4 0.3 14% 9% 5 0.2 15% 8% The variances of Stocks A and B are _____ and _____, respectively. Group of answer choices .015%; .019% .022%; .012% .032%; .02% .015%; .011% .014%; .021%
3. Consider three stocks A, B and C and a market index M with the following prices: Year TO T1 T2 T3 A 85 108 110 125 B 12 14 13 15 C 50 60 70 75 M 1128 1435 1578 1786 The risk-free rate equals 4%. a. Compute the expected return and risk on each stock and the market index. b. Construct the matrix of variances and covariances between these assets. c. Construct the matrix of the correlation coefficients. d. Compute the beta coefficients of these companies and the expected return at equilibrium. e. Construct the minimum risk portfolio P1 composed of A and C. Compute the expected return and risk on this portfolio. f. Construct a portfolio P2 composed of A, B and C in proportions of 20%, 30% and 50%. Compute the expected return and risk on this portfolio. What is the contribution of each security to the return and risk pf this portfolio? g. Construct an equally weighted portfolio P3 composed of A, B, C and the risk-free rate. Compute the beta coefficient and position this portfolio with…
The probability distribution of returns for the two stocks X and Y are as follows: Probability 0.1 0.3 0.05 0.25 0.15 0.15 For each of the two stocks, calculate: a. The expected return. b. Variance of returns c. Volatility of returns. Stock X 0.05 -0.1 0.08 -0.08 0.20 0.12 Return Stock Y 0.13 0,04 -0.12 0.21 0.1 -0.05
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.
Please solve c part and get a thumbs up
2.
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a) Share X and Share Y have the following returns with their respective probabilities. Share X Share Y Return Probability Return Probability 10% 0.3 15% 0.35% 0.31% 0.4-4% 0.4-10% 0.3 Calculate the following: i) The expected rate of returns for both shares. ii) The standard deviation for both shares. ii) On a stand-alone basis, select which stock is the riskier..
Consider the following information for four portfolios, the market, and the risk-free rate (RFR): Portfolio Return Beta SD A1 0.15 1.25 0.182 A2 0.1 0.9 0.223 A3 0.12 1.1 0.138 A4 0.08 0.8 0.125 Market 0.11 1 0.2 RFR 0.03 0 0 Refer to Exhibit 18.6. Calculate the Jensen alpha Measure for each portfolio. a. A1 = 0.014, A2 = -0.002, A3 = 0.002, A4 = -0.02 b. A1 = 0.002, A2 = -0.02, A3 = 0.002, A4 = -0.014 c. A1 = 0.02, A2 = -0.002, A3 = 0.002, A4 = -0.014 d. A1 = 0.03, A2 = -0.002, A3 = 0.02, A4 = -0.14 e. A1 = 0.02, A2 = -0.002, A3 = 0.02, A4 = -0.14
Given the returns and probabilities for the three possible states listed below, calculate the covariance between the returns of Stock A and Stock B. For convenience, assume that the expected returns of Stock A and Stock B are 8.10 percent and 11.60 percent, respectively. (Round answer to 4 decimal places, e.g. 0.0768.) Good OK Poor Covariance Probability 0.22 0.60 0.18 Return on Stock A 0.30 0.10 -0.25 Return on Stock B 0.50 0.10 -0.30