a. Calculate the total value of all shares outstanding currently. b. What fraction of the total value outstanding does each stock make up? c. You hold the market portfolio, that is, you have picked portfolio weights equal to the answer to part b with eac weight is equal to its contribution to the fraction of the total value of all stocks. What is the expected return of your portfolio?

a. Calculate the total value of all shares outstanding currently. b. What fraction of the total value outstanding does each stock make up? c. You hold the market portfolio, that is, you have picked portfolio weights equal to the answer to part b with eac weight is equal to its contribution to the fraction of the total value of all stocks. What is the expected return of your portfolio?

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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Suppose that a mutual fund manager has a $20 million portfolio with a beta of 1.2. Also suppose that the risk free rate is 4.5% and the market risk premium is 6%. The manager expects to receive an additional $5 million, which is to be invested in a number of new stocks to add to the portfolio. After these stocks are added, the manager would like the fund's required rate of return to be 10.5%. For notation, let r represent the required return, let RF represent the risk free rate, let b represent the beta of a group of stocks, and T'm represent the market return. According to the video, which equation most closely describes the security market line (SML)? Or=TRF-bx (TM - TRF) Ⓒr=TRF+b× (™M - TRF) b ○ r = TRF + TM-TRF Or=rRF+bx (M+TRF) Hint: Recall that the manager wants the new required rate of return for the portfolio to remain at 10.5%. Using the equation you just identified, and plugging in the relevant information, yields a beta of the portfolio, after the new stocks have been added,…
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After learning the course, you divide your portfolio into three equal parts (i.e., equal market value weights), with one part in Treasury bills, one part in a market index, and one part in a mutual fund with beta of 1.11. What is the beta of your overall portfolio?
After learning the course, you divide your portfolio into three equal parts (i.e., equal market value weights), with one part in Treasury bills, one part in a market index, and one part in a mutual fund with beta of 0.77. What is the beta of your overall portfolio?
Beta for stock AAA=0, so, A) stock AAA's return = the return of the market portfolio. B) stock AAA's required return = the risk-free rate C) stock AAA has a promised return, regardless of the market condition. D) stock AAA's return >return of the market portfolio.
Discuss how to determine the risk or beta of a stock, the required rate of return of a stock and the value of a stock. How do you determine if a stock has high or low or average risk when compared to the S&P 500? How do you determine if a stock is overpriced, underpriced or fairly priced? Explain and Discuss.
Which of the following is needed to calculate a firm’s WACC? A. the cost of carrying inventory B. the amount of capital necessary to make the investment C. the cost of preferred stock D. the probability distribution of expected returns E. both b and c
Investors can use certain metrics to assess a stock or stock portfolio's risk. One of them is the Sortino ratio. What is this ratio and what is unique in its measurement?
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 will increase b. risk would decrease c. Systematic risk would increase d. return would increase
how much of your capital (what weight) would you invest in stock A to maximize your portfolio's expected return per unit risk (maximize the Sharpe Ratio)?
Let's explore the difference between "expected" and "actual" return of a stock. 1) How might we calculate what the expected return of a stock should be? 2) How might we calculate the "actual" return of a stock?
Which of the following is FALSE? O A. A value-weighted portfolio is an equal-ownership portfolio: We hold an equal fraction of the total number of shares outstanding of each security in the portfolio. B. When buying a value-weighted portfolio, we end up purchasing the same percentage of shares of each firm. O C. In a value-weighted portfolio the fraction of money invested in any security corresponds to its share of the total number of shares outstanding of all securities in the portfolio. O D. To maintain a value-weighted portfolio, we do not need to trade securities and rebalance the portfolio unless the number of shares outstanding of some security changes.

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