6. The data below describe a three-stock financial market that satisfies the single-index model. The standarddeviation of the market index portfolio is 25%.StockBetaA1.0B0.2C1.7Capitalization$3,000$1,940$1,360Mean Excess Return10%2%17%a. What is the mean excess return of the index portfolio?b. What is the covariance between stock A and stock B?Standard Deviation40%30%50%c. What is the covariance between stock B and the index?d. Break down the variance of stock B into its systematic and firm-specific components.

Covariance: Covariance represents a tool of statistics employed to determine the association…

6. The data below describe a three-stock financial market that satisfies the single-index model. The standard deviation of the market index portfolio is 25%. Stock Beta A 1.0 B 0.2 C 1.7 Capitalization $3,000 $1,940 $1,360 Mean Excess Return Standard Deviation 10% 2% 17% 40% 30% 50% a. What is the mean excess return of the index portfolio? b. What is the covariance between stock A and stock B? c. What is the covariance between stock B and the index? d. Break down the variance of stock B into its systematic and firm-specific components.

6. The data below describe a three-stock financial market that satisfies the single-index model. The standard deviation of the market index portfolio is 25%. Stock Beta A 1.0 B 0.2 C 1.7 Capitalization $3,000 $1,940 $1,360 Mean Excess Return Standard Deviation 10% 2% 17% 40% 30% 50% a. What is the mean excess return of the index portfolio? b. What is the covariance between stock A and stock B? c. What is the covariance between stock B and the index? d. Break down the variance of stock B into its systematic and firm-specific components.

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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2. The following table shows the constituent stocks of a hypothetical index. Stock B splits two-for-one during the period. Stock A B C Beginning of Period Price ($) Shares 30 75 36 2,000 500 1,200 End of Period Price ($) 26 40 32 Shares 2,000 1,000 1,200 a. Calculate the returns on both the price-weighted index and the market value- weighted index of three stocks over the period. b. If you just buy 5,000 shares of stock C for $36, hold for 1 year, collect $8 dividend and sell it at $32. Calculate your total return.
2. Consider stocks A and B with the following monthly returns: Stock 1 2 3 4 A -2% 3% 1% 6% 4% B 1% -2% 4% 5% 3% a. What is the expected return and risk of a portfolio composed of 30% A and 70% B? b. What is the contribution of each stock to portfolio's return and risk? c. What is the structure of the minimum risk portfolio? Compute its expected return and risk.
Scenario 2: The following table shows the returns for the market index (Market - M) and the returns for two stocks (Asset X & Y) under three scenarios. Assume each scenario has an equal chance of occurring (33%). Bad Okay Good Market - M-5% 5% 15% Asset - X -2%-3% 25% Asset - Y -4%-6% 30% What is the correlation of "Asset - Y" to "Market M"? enter your number to two decimal places without the percent sign. Example 23% enter as .23.
Consider the three stocks in the following table. Pt represents price at time t, and Qt represents shares outstanding at time t. Stock C splits two-for-one in the last period. A B C Po 82 42 84 00 100 200 200 Divisor P1 87 37 94 01 100 200 200 P2 87 37 47 92 100 200 400 Required: a. Calculate the rate of return on a price-weighted index of the three stocks for the first period (t=0 to t= 1). (Do not round intermediate calculations. Round your answer to 2 decimal places.) Rate of return I % b. What will be the divisor for the price-weighted index in year 2? (Do not round intermediate calculations. Round your answer to 2 decimal places.) D c. Calculate the rate of return of the price-weighted index for the second period (t=1 to t = 2).
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.
Give the return of the stock in which you would most likely invest and show the preferred order of the stocks if you were considering further investment, all other things being equal. Stock Beta Risk-Free Market-Rate CA-K 0.95 5.5% 9% AU-L 1.05 6% 8.5% TT-M 1.10 5% 8%
Consider the following stock return scenarios for three stocks: Stock Stock A B Economy Up Average Down 8% 5% 0% 2% 3% 4% Stock с 12% 0% -5% If each state of the economy is equally likely, calculate the expected return and population standard deviation for a portfolio invested entirely in Stock A. Which stock should be added to the portfolio to reduce risk?
Consider the three stocks in the following table. P(t) represents price at time t, and Q(t) represents shares outstanding at time t. Stock C splits two-for-one in the last period. What is the rate of return for the price-weighted index that is formed using Stocks A, B, and C from time period 1 to time period 2? B C zero P(1) 95 45 100 -20.83% 20.83% None of the above Q(1) 100 200 200 P(2) 95 45 50 Q(2) 100 200 400
if you were to invest 40% in A and 60% in B, what would be the expected return of your portfolio? Enter return in decimal form, rounded to 4th digit, as in "0.1234"
Based on the following information for Stock A and Stock B, which stock would you add to a market index portfolio that is well diversified? Assume the risk- free rate is 5% and the market risk premium is 10%. Stocks E(r) Standard Deviation Beta 15% 1.5 12% 0.6 A B 20% 25% a. Stock B b. Both Stock A and Stock B C. Stock A d. Neither Stock A or Stock B.
What is the beta of the following two stock portfolio? Security Beta of the security Amount invested A 1.35 $ 20,000 B 0.50 $ 30,000 a. 1.075 b. 1.00 c. 1.19 d. 0.84

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