18. What is the standard deviation of the returns on a portfolio that is invested in stocks A, B, C? 25 percent of the portfolio is invested in stock A and 45 percent is invested in stock C. and State of Economy Probability of Returns if State Occurs State of Economy | Stock A Stock B Stock C Boom 5% 21% 8% 28% Normal 70% 10% 13% 19% Bust 25% -3% 24% -31%

18. What is the standard deviation of the returns on a portfolio that is invested in stocks A, B, C? 25 percent of the portfolio is invested in stock A and 45 percent is invested in stock C. and State of Economy Probability of Returns if State Occurs State of Economy | Stock A Stock B Stock C Boom 5% 21% 8% 28% Normal 70% 10% 13% 19% Bust 25% -3% 24% -31%

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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QUESTION 1 Consider the following information on stocks I and II: State of probability of Rate of Return if state Occurs state of Econ. Stock I Stock II 0.20 0.06 0.55 0.47 0.25 0.23 The market risk premium is 8%, and the risk free rate is 6%. Economy Recession Normal Boom a) Which stock has the most Systematic risk? b) Which one has the most unsystematic risk? c) Which stock is "riskier"? Explain. -0.25 0.11 0.68
Consider the following information: Rate of Return if State Occurs Probability of State State of Economy of Economy Stock A Stock B Stock C Boom .10 34 44 24 Good .60 .19 15 08 Poor .25 -.01 09 -.07 Bust .05 -15 -.19 -11 a. Your portfolio is invested 25 percent each in A and C, and 50 percent in B. What is the expected return of the portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b-1. What is the variance of this portfolio? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161.) b-2. What is the standard deviation? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Expected return b-1. Variance % b-2. Standard deviation %
Based on this image, how many stocks does it take to eliminate most of the diversifiable risk?
11.2. Below are the expected returns from both stocks based on the probability of economic conditions. It is desired to create a portfolio from two stocks. It is decided to invest 30% in stock A and 70% in stock B. Stock A State (i) p(i) E(R) Recession 0.50 -40% Neutral 0.40 15% Boom 0.10 30% 1.00 Stock B State (i) p(i) E(R) Recession 0.5 40% Neutral 0.40 15% Вoom 0.1 -20% 1.00 d- Find the expected return and standard deviation of this portfolio? e- If you were a portfolio manager, what type of investors do you recommend this portfolio and why? f- Explain why the beta of the market is always equal to 1 and beta of a treasury bill equal to 0.
i) Calculate the expected return for each stock assuming the Capital Asset Pricing Model (CAPM) is valid, and explain if they are correctly priced. Show your calculations.
What are the expected returns for stock A and stock B? State Probability Return on A Return on B Boom .60 0.35 0.10 Bust .40 0.05 0.25 a. 15.50%, 10.83% b. 26.00%, 14.50% c. 23.00%, 16.00% d. 21.50%, 16.75%
ff2
3
Consider the following information: State of Economy Boom Bust Probability of State of Economy .72 .28 Rate of Return if State Occurs Stock A .10 .19 Stock B Stock C .04 .30 .25 -.10 a. What is the expected return on an equally weighted portfolio of these three stocks? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal pla b. What is the variance of a portfolio invested 27 percent each in A and B and 46 percent in C? Note: Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161. a. Expected return b. Variance of portfolio % 3
State of economy Probability Rate of returns Stock A Stock B Stock C Boom 0.35 0.24 0.36 0.55 Normal 0.50 0.17 0.13 0.09 Bust 0.15 0 0.28 0.45 Based on the table above, you invested 40% on Stock A and B and 20% on Stock C. Calculate the expected return on this portfolio.
Suppose you bought $48,000 worth of stock A and $80,000 worth of stock B. The standard deviation of returns is 59% for stock A and 27% for stock B. The two stocks' returns have a correlation of 0.2. What is the standard deviation of this portfolio's returns? a. 15.2% b. 18.6% c. 23.6% O d. 26.9% O e. 30.4% QUESTION 10

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