b. Consider the following information about three stocks: Probability of State of Economy 0.40 0.60 ii. iv. State of Economy V. Boom Recession Rate of Return if State Occurs Stock Hang Stock Hang Jebat 7% 13% From the information given, you are required to answer the following questions. i. Compute the Standard Deviation for each stock. Tuah 28% (5%) Stock Hang Kasturi 15% 3% Compute the Coefficient Variation for each stock. Based on your computation in part (i) and (ii), which stock is riskier? Explain your answer. Assume that you have RM14,000 invested in Stock Hang Jebat whose beta is 1.5, RM19,000 invested in Stock Hang Kasturi whose beta is 2.5 and RM17,000 invested in Stock Hang Tuah whose beta is 1.6. Determine what is the beta of this portfolio. Based on your answer in part (iv), compute the required rate of return for this portfolio, given that the market rate of return is 13% and risk-free rate is 5%.
b. Consider the following information about three stocks: Probability of State of Economy 0.40 0.60 ii. iv. State of Economy V. Boom Recession Rate of Return if State Occurs Stock Hang Stock Hang Jebat 7% 13% From the information given, you are required to answer the following questions. i. Compute the Standard Deviation for each stock. Tuah 28% (5%) Stock Hang Kasturi 15% 3% Compute the Coefficient Variation for each stock. Based on your computation in part (i) and (ii), which stock is riskier? Explain your answer. Assume that you have RM14,000 invested in Stock Hang Jebat whose beta is 1.5, RM19,000 invested in Stock Hang Kasturi whose beta is 2.5 and RM17,000 invested in Stock Hang Tuah whose beta is 1.6. Determine what is the beta of this portfolio. Based on your answer in part (iv), compute the required rate of return for this portfolio, given that the market rate of return is 13% and risk-free rate is 5%.
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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Transcribed Image Text:b. Consider the following information about three stocks:
Probability of
State of
i.
ii.
iii.
iv.
State of
Economy
V.
Boom
Recession
Economy
0.40
0.60
From the information given, you are required to answer the following questions.
Compute the Standard Deviation for each stock.
Compute the Coefficient Variation for each stock.
Based on your computation in part (i) and (ii), which stock is riskier? Explain your
answer.
Rate of Return if State Occurs
Stock Hang
Stock Hang
Jebat
7%
13%
Tuah
28%
(5%)
Stock Hang
Kasturi
15%
3%
Assume that you have RM14,000 invested in Stock Hang Jebat whose beta is 1.5,
RM19,000 invested in Stock Hang Kasturi whose beta is 2.5 and RM17,000 invested
in Stock Hang Tuah whose beta is 1.6. Determine what is the beta of this portfolio.
Based on your answer in part (iv), compute the required rate of return for this portfolio,
given that the market rate of return is 13% and risk-free rate is 5%.
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