Andre is an amateur investor who holds a small portfolio consisting of only four stocks. The stock holdings in his portfolio are shown in the following table: Stock Percentage of Portfolio Expected Return Standard Deviation Artemis Inc. 20% 6.00% 38.00% Babish & Co. 30% 14.00% 42.00% Cornell Industries 35% 13.00% 45.00% Danforth Motors 15% 3.00% 47.00% What is the expected return on Andre’s stock portfolio? 15.60% 14.04% 7.80% 10.40% Suppose each stock in Andre’s portfolio has a correlation coefficient of 0.4 (ρ = 0.4) with each of the other stocks. If the weighted average of the risk of the individual securities (as measured by their standard deviations) included in the partially diversified four-stock portfolio is 43%, the portfolio’s standard deviation (σp) most likely is (less than / equal to / more than) 43%.
Andre is an amateur investor who holds a small portfolio consisting of only four stocks. The stock holdings in his portfolio are shown in the following table: Stock Percentage of Portfolio Expected Return Standard Deviation Artemis Inc. 20% 6.00% 38.00% Babish & Co. 30% 14.00% 42.00% Cornell Industries 35% 13.00% 45.00% Danforth Motors 15% 3.00% 47.00% What is the expected return on Andre’s stock portfolio? 15.60% 14.04% 7.80% 10.40% Suppose each stock in Andre’s portfolio has a correlation coefficient of 0.4 (ρ = 0.4) with each of the other stocks. If the weighted average of the risk of the individual securities (as measured by their standard deviations) included in the partially diversified four-stock portfolio is 43%, the portfolio’s standard deviation (σp) most likely is (less than / equal to / more than) 43%.
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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Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Question
Andre is an amateur investor who holds a small portfolio consisting of only four stocks. The stock holdings in his portfolio are shown in the following table:
|
Stock
|
Percentage of Portfolio
|
Expected Return
|
Standard Deviation
|
|---|---|---|---|
| Artemis Inc. | 20% | 6.00% | 38.00% |
| Babish & Co. | 30% | 14.00% | 42.00% |
| Cornell Industries | 35% | 13.00% | 45.00% |
| Danforth Motors | 15% | 3.00% | 47.00% |
What is the expected return on Andre’s stock portfolio?
- 15.60%
- 14.04%
- 7.80%
- 10.40%
Suppose each stock in Andre’s portfolio has a correlation coefficient of 0.4 (ρ = 0.4) with each of the other stocks. If the weighted average of the risk of the individual securities (as measured by their standard deviations) included in the partially diversified four-stock portfolio is 43%, the portfolio’s standard deviation (σp) most likely is (less than / equal to / more than) 43%.
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