2.(a)(b)You have been asked to look at the following share portfolio:ShareValue of holdingReturn last 12 monthsStandard deviationBetaABK14,000 K16,00013%15%46%32%1.11.3сK19,0008%63%0.9Over the last 12 months, the return on the market was 10% and the risk-free rate was6%.Calculate the beta and return over the last 12 months of the portfolio.Estimate the return you would have expected from the portfolio using the Capital AssetPricing Model (CAPM). Explain why the expected return is different from the actualreturn.(c) Assuming that the returns on shares A and B have a correlation coefficient of 0.5%,calculate the return and risk of a portfolio consisting only of holdings in A and B.

(a) Calculate the beta and return over the last 12 months of the portfolio. (b) Estimate the return you would have expected from the portfolio using the Capital Asset Pricing Model (CAPM). Explain why the expected return is different from the actual return. (c) Assuming that the returns on shares A and B have a correlation coefficient of 0.5%, calculate the return and risk of a portfolio consisting only of holdings in A and B.

(a) Calculate the beta and return over the last 12 months of the portfolio. (b) Estimate the return you would have expected from the portfolio using the Capital Asset Pricing Model (CAPM). Explain why the expected return is different from the actual return. (c) Assuming that the returns on shares A and B have a correlation coefficient of 0.5%, calculate the return and risk of a portfolio consisting only of holdings in A and B.

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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Calculate the required rate of return for an asset that has a beta of 1.01, given a risk-free rate of %3.4 and a market return of %9.1 . b. If investors have become more risk-averse due to recent geopolitical events, and the market return rises to %11.6, what is the required rate of return for the same asset? a. The required rate of return for the asset is enter your response here%. (Round to two decimal places.) Part 2 b. If investors have become more risk-averse due to recent geopolitical events, and the market return rises to 11.6%, the required rate of return for the same asset is enter your response here%. (Round to two decimal places.)
Suppose we form a portfolio invested in Mercedes and BMW stocks. The two stocks are equally weighted in the portfolio. The table below displays each stock’s mean return, variance, and standard deviation, as well as their covariance. Estimate the mean and variance of this portfolio, as well as its standard deviation. Show in detail your Asset returns Mercedes BMW Mean return 1.78% -0.48% Variance 0.0456 0.0276 Standard deviation 21.35% 16.61% Covariance 0.0020
Assume for parts (a) to (h) that the Capital Asset Pricing Model holds. The marketportfolio has an expected return of 5%. Stock A’s return has a market beta of 1.5, anexpected value of 7% and a standard deviation of 10%. Stock B’s return has amarket beta of 0.5 and a standard deviation of 20%. The correlation between stockA’s and stock B’s return is 0.5.Required:a) Explain the term ‘capital asset pricing model.’b) What is the risk-free rate?c) What is the expected return on stock B?d) Draw a graph with expected return on the y-axis and beta on the x-axis. Indicate the approximate position of the risk-free asset, the market portfolio and stocks A and B on this graph. Draw the line, which connects these four points.e) Explain the term ‘Securities Market Line’, and what is the slope of the SML for this economy?f) Consider a portfolio with a weight of 50% in stock A and 50% in stock B. What are its variance and expected return?g) Where would under-priced and over-priced securities plot on…
A portfolio that combines the risk-free asset and the market portfolio has an expected return of 7 percent and a standard deviation of 10 percent.The risk-free rate is 4 percent, and the expected return on the market portfolio is 12 percent. Assume the capital asset pricing model holds. Compute and justify the expected rate of return would a security earn if it had a 0.45 correlation with the market portfolio and a standard deviation of 55 percent.
Suppose the risk free return is 6%. The beta of a managed portfolio is 1.5, the alpha is 3%, and the average return is 18%. Based on Jensen's measure of portfolio performance, you would calculate the return on the market portfolio as ___ % ?
If an investor that owns a portfolio with 3 stocks increases their portfolio to 30 stocks, which of the following is MOST LIKELY to happen? Select one: a. risk would increase b. the Sharpe ratio would increase c. return would decrease d. Sharpe would decrease
Consider the stocks in the table with their respective beta coefficients to answer the following questions:a. Which of the assets represents the most sensitive to fluctuations or changes in market returns and why? What impact in terms of risk and return would this asset have if you add it to an investment portfolio in a higher proportion than all other assets? b. Which of the assets represents the least sensitive to fluctuations or changes in market returns and why? What impact in terms of risk and return would this asset have, if you add it to an investment portfolio in a greater proportion than all other assets? Stock Beta SKT 0.65 COST 0.90 SU 1.42 AMZN 1.57 V 0.94
The data on the expected return of 2 stocks (M and C) along with the economic conditions and their probabilities is attached below Questions : Calculate the expected return for asset M and asset C. Calculate the standard deviation for asset M and asset C. c) If asset M is a market portfolio, while the beta (β) for asset C is 1.25 and the risk-free asset is 6%. What is the required rate of return for asset C according to the CAPM method ?. .
According the picture, Find:a) the expected return and standard deviation on this portfolio. b) the expected return on the market using portfolio beta if Rf=5%.

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