Consider the following information about three stocks: State of Probability of state of economy economy Boom 0.30 Normal 0.45 Bust 0.25 a-1. If your portfolio is invested 40 percent each in A and B and 20 percent in C, what is the portfolio expected return? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Rate of return if state occurs. Stock A Stock B Stock C 0.20 0.25 0.60 0.15 0.11 0.05 0.01 -0.15 -0.50 Portfolio expected return a-2. What is the variance? (Do not round intermediate calculations. Round the final answer to 5 decimal places.) Variance % e-3. What is the standard deviation? (Do not round intermediate calculations. Round the finalanswer to 2 decimal places.) Standard deviation b. If the expected T-bill rate is 3.80 percent, what is the expected risk premium on the portfolio? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Expected risk premium % %

Consider the following information about three stocks: State of Probability of state of economy economy Boom 0.30 Normal 0.45 Bust 0.25 a-1. If your portfolio is invested 40 percent each in A and B and 20 percent in C, what is the portfolio expected return? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Rate of return if state occurs. Stock A Stock B Stock C 0.20 0.25 0.60 0.15 0.11 0.05 0.01 -0.15 -0.50 Portfolio expected return a-2. What is the variance? (Do not round intermediate calculations. Round the final answer to 5 decimal places.) Variance % e-3. What is the standard deviation? (Do not round intermediate calculations. Round the finalanswer to 2 decimal places.) Standard deviation b. If the expected T-bill rate is 3.80 percent, what is the expected risk premium on the portfolio? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Expected risk premium % %

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 the following information: State of Economy Probability of State of Economy Boom Bust .72 .28 a. Expected return b. Variance of portfolio Rate of Return if State Occurs Stock A Stock B .04 .25 13.73 % .10 .19 a. What is the expected return on an equally weighted portfolio of these three stocks? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. What is the variance of a portfolio invested 27 percent each in A and B and 46 percent in C? Note: Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161. Stock C .30 -.10
State of economy Probability Rate of returns Stock A Stock B Stock C Boom 0.35 0.24 0.36 0.55 Normal 0.50 0.17 0.13 0.09 Bust 0.15 0 0.28 0.45 Base on the table above, you invested 40% on Stock A and B and 20% on Stock C. Calculate the expected return on this portfolio.
If the risk free rate is 4.4%, the expected return on the market portfolio (i.e., Rm)( is 11.6%, and the beta of Stock B is 0.9 , what is the required rate of return for Stock B according to the Capital Asset Pricing Model (CAPM)? (Round your answer rounded to one decimal place and record without a percent sign). Your Answer: If the risk free rate is 1.2%, the market risk premium (i.e., Rm - Rf) is 13.5%, and the beta of Stock B is 1.9 , what is the required rate of return for Stock B according to the Capital Asset Pricing Model (CAPM)? (Round your answer rounded to one decimal place and record without a percent sign). Your Answer:
Using the CAPM, estimate the appropriate required rate of return for the three stocks listed here, given that the risk-free rate is 4 percent and the expected return for the market is 17 percent. STOCK BETA A 0.63 B 0.95 C 1.48 a. Using the CAPM, the required rate of return for stock A is B.Using the CAPM, the required rate of return for stock b is C.Using the CAPM, the required rate of return for stock C is (Round to two decimal places.)
Consider the following stock return scenarios for three stocks: Stock Stock A B Economy Up Average Down 8% 5% 0% 2% 3% 4% Stock с 12% 0% -5% If each state of the economy is equally likely, calculate the expected return and population standard deviation for a portfolio invested entirely in Stock A. Which stock should be added to the portfolio to reduce risk?
Consider the following information on a portfolio of three stocks: State of Economy Probability of State of Economy Stock A Rate of Return Stock B Rate of Return Stock C Rate of Return Boom.13.02.32.50 Normal.55.10.22.20 Bust .32.16.21.35 If your portfolio is invested 40 percent each in A and B and 20 percent in C, what is the portfolio's expected return, the variance, and the standard deviation? Note: Do not round intermediate calculations. Round your variance answer to 5 decimal places, e.g., 16161. Enter your other answers as a percent rounded to 2 decimal places, e. g., 32.16. If the expected T-bill rate is 4.25 percent, what is the expected risk premium on the portfolio? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.
There are two assets and three states of the economy: State of Economy Probability of State of Economy Rate of Return If State Occurs Stock A Recession Normal Stock B .30 .50 -.20 .40 .10 .80 .30 Boom .20 Suppose you have $20,000 total. If you put $15,000 in Stock A and the remainder in Stock B, what will be the standard deviation of your portfolio? (Keep 2 post decimal digits in your final answer) .50
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 2.5% + 0.60RM + eA RB = –1.5% + 0.70RM + eB σM = 19%; R-squareA = 0.24; R-squareB = 0.18 Assume you create a portfolio Q, with investment proportions of 0.40 in a risky portfolio P, 0.35 in the market index, and 0.25 in T-bill. Portfolio P is composed of 70% Stock A and 30% Stock B. What is the covariance between the portfolio and the market index? (Calculate using numbers in decimal form, not percentages. Do not round intermediate calculations. Round your answer to 2 decimal places.)
Consider the following simplified APT model: Factor Expected Risk Premium Market 6.4% Interest Rate -0.6% Yield Spread 5.1% Factor Risk Exposures Market Interest Rate Yield Spread Stock Stock(b1) (b2) (b3) P 1.0 -2.0 -0.2 P2 1.2 0 0.3 P3 0.3 0.5 1.0 Required: 1. Calculate the expected return for the above stocks. Assume risk free rate is 5%. Consider a portfolio with equal investments in stocks P, P2 and P3 2.What are the factor risk exposures for the portfolio? 3.What is the portfolio’s expected return?
1. Consider the following information State of Economy Probability of State of Economy Rate of Return if State Occurs Stock S Stock T Boom .20 22% 18% Normal .80 15 % 14% i) What is the expected return for stock S? For Stock T? ii) What is the standard deviation for Stock S? For stock T? iii) What is the coefficient of variation for Stock S? For stock T? iv) If you invest 40% of your money in stock S and 60% in stock T, what is the expected return of the portfolio v) Find the return of your portfolio when a) economy is booming and b) economy is normal. vi) What is the standard deviation for your portfolio?
You decide to invest in a portfolio consisting of 25 percent Stock A, 25 percent Stock B, and the remainder in Stock C. Based on the following information, what is the expected return of your portfolio? State of Economy Probability of State Return if State Occurs of Economy Stock A Stock B Stock C Recession .17 - 15.4 % - 2.2 % - 21.1 % Normal .50 11.6 % 6.8 % 15.4 % Boom .33 25.2 % 14.1 % 30.0 % Multiple Choice 12.87% 12.34% 15.21% 13.95% 11.80%
State of economy Probability Rate of returns Stock A Stock B Stock C Boom 0.35 0.24 0.36 0.55 Normal 0.50 0.17 0.13 0.09 Bust 0.15 0 0.28 0.45 Based on the table above, you invested 40% on Stock A and B and 20% on Stock C. Calculate the expected return on this portfolio.

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