The following are estimates for two stocks.StockABExpectedReturn10%18Stock AStock BT-billsBeta0.701.25The market index has a standard deviation of 22% and the risk-free rate is 7%.Required:a. What are the standard deviations of stocks A and B?b. Suppose that we were to construct a portfolio with proportions:0.350.350.30Stock AStock BFirm-SpecificStandardDeviation28%42Compute the expected return, beta, nonsystematic standard deviation, and standard deviation of the portfolio.Complete this question by entering your answers in the tabs below.Required A Required BWhat are the standard deviations of stocks A and B?Note: Do not round intermediate calculations. Round your answers to 2 decimal places.%%

Portfolio beta is a measure of an investment portfolio's overall volatility or systematic risk…

a. What are the standard deviations of stocks A and B? b. Suppose that we were to construct a portfolio with proportions: Stock A Stock B T-bills. Compute the expected return, beta, nonsystematic standard deviation, and standard deviation of the portfolio. 0.35 0.35 0.30

a. What are the standard deviations of stocks A and B? b. Suppose that we were to construct a portfolio with proportions: Stock A Stock B T-bills. Compute the expected return, beta, nonsystematic standard deviation, and standard deviation of the portfolio. 0.35 0.35 0.30

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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Give typing answer with explanation and conclusion Assume that two stocks are available. The first stock (Stock A) has an expected return of 25% and a standard deviation of 20%; the second stock (Stock B) has an expected return of 12% and a standard deviation of 10%. If the correlation between the stocks is 0.10, what are the weight of Stock A (WA) and Weight of Stock B(WB) in the minimum-variance portfolio? WA=17.39%, WB=82.61% WA=14.29%, WB=85.71% WA=10.30%, WB=89.70% WA=30.25%, WB=69.75%
Q1) The covariance between stocks A and B is 0.0014, standard deviation of stock A is 0.032, and standard deviation of stock B is 0.044. Which of the following is the most appropriate to depict the risk-return characteristics of a portfolio consisting of only stocks A and B, and explain why? (Image attached as Q)
Suppose you create a portfolio with two securities: Security Security Weight (%) Security Variance (%) X 70 18 Y 30 22 If the correlation coefficient between the two securities is -0.2, what is the standard deviation of the portfolio？
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.
The beta of a portfolio is: A. A measure of the correlation of betas of the securities in the portfolio. B. Always greater than one. C. The market value weighted average beta of the securities in the portfolio. D. The geometric average of the beta of the securities in the portfolio.
Consider a portfolio consisting of the following three stocks: an expected return of 8%. The risk-free rate is 3%. a. Compute the beta and expected return of each stock. ▪ The volatility of the market portfolio is 10% and it has b. Using your answer from part a, calculate the expected return of the portfolio. c. What is the beta of the portfolio? d. Using your answer from part c, calculate the expected return of the portfolio and verify that it matches your answer to part b.
If you plot the relationship between portfolio expected return and portfolio beta, what is the slope of the line that results? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) | Slope of the line %
Portfolio Suppose rA ~ N (0.05, 0.01), rB ~ N (0.1, 0.04) with pA,B = 0.2 where rA and rB are CCR’s. a) Suppose you construct a portfolio with 50% for A and 50% for B. Find the variance of the portfolio CCR. b) Find the portfolio expected gross return. c) Find the expected portfolio CCR.
A stock's returns have the following distribution: Probability Rate of Return 0.1 -2% 0.2 -10% 0.4 10 % 0.2 20 % 0.1 30% Calculate the stock's a) expected return, b) standard deviation, and c) coefficient of variation.
The index model has been estimated for stocks A and B with the following results: RA 0.01 +0.5RM + A RB = 0.02 +1.3RM + eB standard deviation of the market is 0.25, standard deviation of eA is 0.2 and standard deviation of eB is 0.10 What is the covariance betwween the returns on stocks A and B?.
Which of the following measures the total risk of a portfolio? A. Standard Deviation B. Correlation Coefficient C. Beta D. Alpha
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:

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