4. Consider the following equation of the CAPM: E(R) = 5%+B₁*10% P is an equally-weighted portfolio composed of the risk-free rate and stocks A, B and C. The following characteristics are given with respect to the three stocks: Stock Po E(P) E(D) B A 100 112 5 1.1 B 5 5.5 1 0.7 C 10 8 1.3 Compute the expected alpha of this portfolio. 4

4. Consider the following equation of the CAPM: E(R) = 5%+B₁*10% P is an equally-weighted portfolio composed of the risk-free rate and stocks A, B and C. The following characteristics are given with respect to the three stocks: Stock Po E(P) E(D) B A 100 112 5 1.1 B 5 5.5 1 0.7 C 10 8 1.3 Compute the expected alpha of this portfolio. 4

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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Consider the following simplified APT model: Factor Expected Risk Premium Market 6.4% Interest Rate -0.6% Yield Spread 5.1% Factor Risk Exposures Market Interest Rate Yield Spread Stock Stock(b1) (b2) (b3) P 1.0 -2.0 -0.2 P2 1.2 0 0.3 P3 0.3 0.5 1.0 Required: 1. Calculate the expected return for the above stocks. Assume risk free rate is 5%. Consider a portfolio with equal investments in stocks P, P2 and P3 2.What are the factor risk exposures for the portfolio? 3.What is the portfolio’s expected return?
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA - 2.60 + 0.90RM + CA Rg- -2.00 + 1.20RM + eg OM- 26, R-equarea 0.21; R-squaren 0.12 Assume you create portfolio Pwith investment proportions of 0.70 in A and 0.30 in B. a. What is the standard deviation of the portfollo? (Do not round your intermediate calculations. Round your answer to 2 decimal places.) Standard deviation b. What is the beta of your portfolio? (Do not round your intermediate calculations. Round your answer to 2 decimal places.) Portfolio beta c. What is the firm-specific variance of your portfolio? (Do not round your intermediate calculations. Round your answer to 4 decimal places.) Firm-specific
Suppose securities A, B, and C have the following expected return and risk. Stock Expected return Risk A 8% 6% B 7% 9% C 13% 9% What is the coefficient of variation for stock A?
We have the following information on Stocks A and B. The risk-free rate is 5%, and the market risk premium is 7.5%. Assume that the market portfolio is correctly priced. Based on the reward-to-risk ratio, are Stocks A and B overpriced, underpriced, or correctly priced? Stock A Stock B Expected return 1196 16.25% Beta 0.8 1.5
Suppose that there are many stocks in the security market and that the characteristics of stocks A and B are given as follows: Stock A B Expected Return 11% 17 Correlation -1 Risk-free rate Standard Deviation 6% 9 Suppose that it is possible to borrow at the risk-free rate, r. What must be the value of the risk-free rate? (Hint: Think about constructing a risk-free portfolio from stocks A and B.) (Do not round intermediate calculations. Round your answer to 3 decimal places.) %
You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset: 8p 1.70 1.30 0.85 1.00 Portfolio X Y Z Market Risk-free Rp 11.5% 10.5 7.2 10.9 4.6 R-squared op 38.00% 33.00 23.00 28.00 0 Assume that the correlation of returns on Portfolio Y to returns on the market is 0.76. What percentage of Portfolio Y's return is driven by the market? Note: Enter your answer as a decimal not a percentage. Round your answer to 4 decimal places.
Using the CAPM, estimate the appropriate required rate of return for the three stocks listed here, given that the risk-free rate is 4 percent and the expected return for the market is 17 percent. STOCK BETA A 0.63 B 0.95 C 1.48 a. Using the CAPM, the required rate of return for stock A is B.Using the CAPM, the required rate of return for stock b is C.Using the CAPM, the required rate of return for stock C is (Round to two decimal places.)
Assume the risk-free rate is r = 3%. Consider the data in the table below: Stock Expected Return Volatility Stock 1 15% 40% Stock 2 7% 30% acompute (c) Determine the tangent portfolios & their respective mean returns and volatilities
You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset: Portfolio Rp X 15.0% Y 14.0 Z 9.0 Market 10.3 Risk-free 4.2 op 32% 27 17 22 0 Portfolio X Y Z Market 6p 1.40 1.10 0.75 1.00 What are the Sharpe ratio, Treynor ratio, and Jensen's alpha for each portfolio? (A negative value should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Leave your ratio answers as a decimal rounded to 5 places (e.g., 0.23546). Enter your alpha answers as a percent rounded to 2 decimal places (e.g., 0.22%).) Sharpe Ratio Treynor Ratio Jensen's Alpha % % % %
The table below shows the expected rates of return for three stocks and their weight in some portfolio: Stock A Stock B Stock C Expected return 0.08 0.03 0.14 Weight 0.4 0.2 0.4 What is the expected portfolio return?
You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset: Portfolio Rp op Bp X 14.0% 31% 1.35 Y 13.0 26 1.10 Z 7.0 14 .75 Market 10.2 19 1.00 Risk-free 6.0 0 0 What are the Sharpe ratio, Treynor ratio, and Jensen's alpha for each portfolio? (A negative value should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Round your ratio answers to 5 decimal places. Enter your alpha answers as a percent rounded to 2 decimal places.) Sharpe Ratio Treynor Ratio Jensen's Alpha Portfolio X % Y % Z % Market %
You are given the following Information concerning three portfolios, the market portfollo, and the risk-free asset: Portfolio X Y Z Market Risk-free Rp 14.10% 13.10 8.50 12.00 7.20 Information ratio op 39.00% 34.00 1.15 0.90 1.00 0 Assume that the tracking error of Portfolio X is 8.90 percent. What is the information ratio for Portfolio X? Note: A negative value should be indicated by a minus sign. Do not round Intermediate calculations. Round your answer to 4 decimal places. 6p 1.50 24.00 29.00 0

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