A portfolio manager is holding the following investments: Stock Amount Invested Beta 10 million 1.4 Y 20 million 1.0 40 million 0.8 The manager plans to sell his holdings of Stock Y. The money from the sale will be used to purchase another $15 million of Stock X and anothe $5 million of Stock Z. The risk-free rate is 5 percent and the market risk premium is 5.5 percent. How many percentage points higher will the required return on the portfolio be after he completes this transaction?

A portfolio manager is holding the following investments: Stock Amount Invested Beta 10 million 1.4 Y 20 million 1.0 40 million 0.8 The manager plans to sell his holdings of Stock Y. The money from the sale will be used to purchase another $15 million of Stock X and anothe $5 million of Stock Z. The risk-free rate is 5 percent and the market risk premium is 5.5 percent. How many percentage points higher will the required return on the portfolio be after he completes this transaction?

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. 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.
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Currently, the risk-free return is 2 percent, and the expected market rate of return is 11 percent. What is the expected return of the following three-stock portfolio? Do not round intermediate calculations. Round your answer to two decimal places. Investment Beta $ 200,000 1.0 100,000 0.1 700,000 2.9 %
You expect the risk-free rate to be 4 percent and the market return to be 10 percent. You also have the following information about three stocks. Current Expected Expected Stock Beta Price Price Dividend U 1.5 $10 $11.50 $1.00 N 1.1 $27 $30 $0.00 Ο 0.8 $35 $36 $1.50 (Question 2 of 2) What is the required rate of return (based on the CAPM) for an equally weighted portfolio of the three stocks? (Enter your answer as a percentage, i.e., "10.25" for 10.25 percent
Quantitative Problem: You are holding a portfolio with the following investments and betas: Stock Dollar investment Beta A $300,000 1.2 B 200,000 1.6 C 400,000 0.75 D 100,000 -0.35 Total investment $1,000,000 The market's required return is 11% and the risk-free rate is 4%. What is the portfolio's required return? Do not round intermediate calculations. Round your answer to three decimal places.
You have just invested in a portfolio of three stocks. The amount of money that you invested in each stock and its beta are summarized below. Stock A B C Investment $196,000 294,000 490,000 Beta Expected rate of return 1.50 0.55 1.35 Calculate the beta of the portfolio and use the Capital Asset Pricing Model (CAPM) to compute the expected rate of return for the portfolio. Assume that the expected rate of return on the market is 18 percent and that the risk-free rate is 9 percent. (Round beta answer to 3 decimal places, e.g. 52.750 and expected rate of return answer to 2 decimal places, e.g. 52.75%) Beta of the portfolio %
3. Capital Asset Pricing Model A. Suppose you invest $400,000 in Treasury Bills that have a yield to maturity of 4% and $600,000 in the market portfolio with an expected return of 14%. What is the expected return on your portfolio? Please show and explain. B. Given the information in part (A), what is the required expected return for an investment in a stock that has a beta of 0.7? Please show and explain.
d. Consider a well-diversified portfolio made up of stocks with the same beta as Intel. What are the beta and standard deviation of this portfolio’s return? The standard deviation of the market portfolio’s return is 20%. e. What is the expected rate of return on each stock? Use the capital asset pricing model with a market risk premium of 8%. The risk-free rate of interest is 4%.
You have assigned the following values to these three firms: Upcoming Dividend $0.50 Estee Lauder Kimco Realty Nordstrom Price $36.00 75.00 11.00 1.58 2.00 Estee Lauder required return Kimco Realty required return Nordstrom required return Assume that the market portfolio will earn 17.20 percent and the risk-free rate is 8.20 percent. Compute the required return for each company using both CAPM and the constant-growth model. (Do not round intermediate calculations and round your final answers to 2 decimal places.) CAPM Growth 11.40% 17.00 8.80 % % % Beta 0.92 1.28 1.24 Constant-Growth Model % % %
Current Attempt in Progress You have just invested in a portfolio of three stocks. The amount of money that you invested in each stock and its beta are summarized below. Stock A B C Investment $190,000 285,000 475,000 Beta of the portfolio Beta Expected rate of return 1.45 0.60 Calculate the beta of the portfolio and use the Capital Asset Pricing Model (CAPM) to compute the expected rate of return for the portfolio. Assume that the expected rate of return on the market is 17 percent and that the risk-free rate is 6 percent. (Round beta answer to 3 decimal places, e.g. 52.750 and expected rate of return answer to 2 decimal places, e.g. 52.75%.) 1.30 %
You have been managing a $5 million portfolio that has a beta of 1.35 and a required rate of return of 11.775%. The current risk-free rate is 3%. Assume that you receive another $500,000. If you invest the money in a stock with a beta of 1.05, what will be the required return on your $5.5 million portfolio? Do not round intermediate calculations. Round your answer to two decimal places. %
You want to create a $72,000 portfolio comprised of two stocks plus a risk-free security. Stock A has an expected return of 13.6 percent and Stock B has an expected return of 14.7 percent. You want to own $25,000 of Stock B. The risk-free rate is 3.6 percent and the expected return on the market is 12.1 percent. If you want the portfolio to have an expected return equal to that of the market, how much should you invest in the risk-free security? Seleccione una: O a. $12,775 Qb. $13,315 O c. $13,550 O d. $12,987 O e. $12,921 4

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