Consider a world with only two risky assets, A and B, and a risk-free asset. Stock A is held at 1/3 at a price per share of $3.00, an expected return of 16% and a σ of 30%. Stock B is held at 2/3 at a price per share of $4.00, an expected return of 10% and a σ of 15%. The correlation between A and B is 0.4 , the covariance of stock A with the market Cov(RA,RM) is 0.042. (a) What is the expected return of the market portfolio? Answer % (b) What is the variance of the market portfolio? Answer (c) What is the beta of each stock?
Consider a world with only two risky assets, A and B, and a risk-free asset. Stock A is held at 1/3 at a price per share of $3.00, an expected return of 16% and a σ of 30%. Stock B is held at 2/3 at a price per share of $4.00, an expected return of 10% and a σ of 15%. The correlation between A and B is 0.4 , the covariance of stock A with the market Cov(RA,RM) is 0.042. (a) What is the expected return of the market portfolio? Answer % (b) What is the variance of the market portfolio? Answer (c) What is the beta of each stock?
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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Consider a world with only two risky assets, A and B, and a risk-free asset. Stock A is held at 1/3 at a price per share of $3.00, an expected return of 16% and a σ of 30%. Stock B is held at 2/3 at a price per share of $4.00, an expected return of 10% and a σ of 15%. The correlation between A and B is 0.4 , the covariance of stock A with the market Cov(RA,RM) is 0.042. (a) What is the expected return of the market portfolio? Answer % (b) What is the variance of the market portfolio? Answer (c) What is the beta of each stock? β_Α=Answer β_Β=Answer
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