A single stock, A has a variance of 0.006 and a covariance with the market portfolio given by 0.013. The market portfolio has an expected return of 10.50%, a market risk premium 4.30% and a variance of 0.013. What is the stock's fair expected return under the CAPM?
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A single stock, A has a variance of 0.006 and a covariance with the market portfolio given by 0.013.
The market portfolio has an expected return of 10.50%, a market risk premium 4.30% and a variance of 0.013.
What is the stock's fair expected return under the
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- Assume the CAPM holds and consider stock X, which has a return variance of 0.09 and a correlation of 0.75 with the market portfolio. The market portfolio's Sharpe ratio is 0.30 and the the risk-free rate is 5%. (a) What is Stock X's expected return? (b) What proportion of Stock X's return volatility (i.e. standard deviation) is priced by the market? Explain why this number is less than 1.Assume that the covariance between Stock A and Stock B is -28%^2 (0.0028). Compute the expected rate of return and variance of rate of return of Donald’s portfolio.Suppose the index model for stocks A and B is estimated with the following results:rA = 2% + 0.8RM + eA, rB = 2% + 1.2RM + eB , σM = 20%, and RM = rM − rf . The regressionR2 of stocks A and B is 0.40 and 0.30, respectively.(a) What is the variance of each stock? (b) What is the firm-specific risk of each stock? (c) What is the covariance between the two stocks?
- Assume the risk-free rate is r = 3%. Consider the data below:Stock(stock 1, stock 2)Expected Return(15%,7%)Volatility(40%,30%)a) Find the What the minimum variance portfolio when ρ12 = 0? and then computeits expected return and volatility?b) Find the minimum variance portfolio when ρ12= =0.4? and then compute itsexpected return and volatility?c) Determine the tangent portfolios & their respective mean returns and volatilities.A stock has a market beta of 0.62 and a standard deviation of 0.27. If the market standard deviation is 0.30, what is thecovariance between the stock return and the market return?The probability distribution of returns for the two stocks X and Y are as follows: Probability 0.1 0.3 0.05 0.25 0.15 0.15 For each of the two stocks, calculate: a. The expected return. b. Variance of returns c. Volatility of returns. Stock X 0.05 -0.1 0.08 -0.08 0.20 0.12 Return Stock Y 0.13 0,04 -0.12 0.21 0.1 -0.05
- A stock has a market beta of 0.86 and a standard deviation of 0.28. If the market standard deviation is 0.30, what is the covariance between the stock return and the market return?Stock A has a return variance (that is σ2) of 0.02. The market portfolio has a return variance of 0.03. The covariance between stock A’s return and market portfolio’s return is 0.01. Stock A has an expected return of 0.09, while the market has an expected return of 0.12. What is the expected return and standard deviation of a portfolio that is 65% invested in A and 35% invested in the market portfolio? a. ER = 10.1%, σ = 12.9% b. ER = 10.8%, σ = 16.7% c. ER = 10.1%, σ = 16.7% d. ER = 9.0%, σ = 12.9% e. ER = 8.5%, σ = 10.1%A person is interested in constructing a portfolio. Two stocks are being considered. Letx = percent return for an investment in stock 1, and y = percent return for an investment instock 2. The expected return and variance for stock 1 are e(x) = 8.45% and Var(x) = 25.The expected return and variance for stock 2 are e(y) = 3.20% and Var(y) = 1. Thecovariance between the returns is sxy = −3.a. what is the standard deviation for an investment in stock 1 and for an investment instock 2? Using the standard deviation as a measure of risk, which of these stocks isthe riskier investment?
- The index model for stock A has been estimated with the following result: RA = 0.01 + 0.9RM + eA. If σM = 0.25 and R2A = 0.25, the standard deviation of return of stock A is:Given: Calculate the expected returns and expected standard deviations of a two-stock portfolio having a correlation coefficient of 0.70 under the following conditions a. w1 = 1.00 b. w1 = 0.75 c. w1 = 0.50 d. w1 = 0.25 e. w1 = 0.05 Plot the results on a return-risk graph. Without calculations, draw in what the curve would look like first if the correlation coefficient had been 0.00 and then if it had been −0.70.A stock’s returns have the following distribution:Assume the risk-free rate is 2%. Calculate the stock’s expected return, standard deviation,coefficient of variation, and Sharpe ratio.