9Check my work mode: This shows what is correct or incorrect for the work you have completed so far. It does not indicate completion.Consider the following information on a portfolio of three stocks:State of Probability ofEconomy State of EconomyBoomStock A Rate ofReturnNormal.32a. Expected returnVariance-17-.12a. If your portfolio is invested 38 percent each in A and B and 24 percent in C, what is the portfolio's expected return, the variance,and the standard deviation?Answer is complete but not entirely correct.18.16%Stock B Rate ofReturn.33Note: Do not round intermediate calculations. Round your variance answer to 5 decimal places, e.g., 16161. Enter your otheranswers as a percent rounded to 2 decimal places, e.g., 32.16.b. If the expected T-bill rate is 3.8 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.Standard deviationb. Expected risk premium0.01638 xStock C Rate ofReturn0.13%0.15 %.59.21-.36Return to question

Initially calculate the expected return and standard deviation for each stock. Then, we can…

Consider the following information on a portfolio of three stocks: State of Probability of Economy State of Economy Book Normal Stock A Rate of Stock 8 Rate of Return Return -32 -12 a. If your portfolio is invested 38 percent each in A and B and 24 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. b. If the expected T-bill rate is 3.8 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. Answer is complete but not entirely correct. a. Expected return Variance Standard deviation b. Expected risk premium Stock C Rate of Return 18.16 0.01638 0.13 0.15% Return to question

Consider the following information on a portfolio of three stocks: State of Probability of Economy State of Economy Book Normal Stock A Rate of Stock 8 Rate of Return Return -32 -12 a. If your portfolio is invested 38 percent each in A and B and 24 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. b. If the expected T-bill rate is 3.8 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. Answer is complete but not entirely correct. a. Expected return Variance Standard deviation b. Expected risk premium Stock C Rate of Return 18.16 0.01638 0.13 0.15% Return to question

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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QUESTION 1 Under which of the following scenarios, the minimum variance portfolio that contains two stocks has the smallest standard deviation? OA. The correlation between the two stock returns is -1 OB. The correlation between the two stock returns is -0.2 OC. The correlation between the two stock returns is 0.2 OD. The correlation between the two stock returns is 0.5
Here are the percentage returns on two stocks. Digital Executive Fruit Cheese 14% 4% Month January February March April May June July August 6 8 Variance Standard deviation % Digital Cheese 2 4 14 a-1. Calculate the monthly variance and standard deviation of each stock. (Do not round intermediate calculations. Round your answers to 1 decimal places.) -3 47.5 69X Executive Fruit 23 2 4.8 X
There are three stocks, A, B, and C, with the following expected return, volatility, and correlation data. You are asked to generate a mean-variance portfolio, the expected return of which should be no less than 8%. What’s your optimal allocation (portfolio weights) for those three stocks?
Consider the following information on Stocks I and II: The market risk premium is 8 percent and the risk-free rate is 40.5 percent. a-1. What is the beta of each stock? Note: Do not round Intermedlate calculations. Round your answers to 2 decimal places. a-2. Which stock has the most systematic risk? Stock I Stock II b-1. What is the standard deviation of each stock? Note: Do not round Intermedlate calculations. Enter your answers as a percent rounded to 2 decimal places. b.2. Which one has the most unsystemstic risk? Stock I Stock II c. Which stock is "riskier"? Stock I Stock II
Consider two stocks, Stock D, with an expected return of 13 percent and a standard deviation of 28 percent, and Stock I, an international company, with an expected return of 16 percent and a standard deviation of 38 percent. The correlation between the two stocks is -0.1. What is the weight of stock D in the minimum variance portfolio?
Assume that the following data available for the portfolio, calculate the expected return, variance and standard deviation of the portfolio given stock A accounts for 45% and stock B accounts for 55% of your portfolio? (4 marks) A B Expected return 12.5% 18.5% Standard Deviation of return 15% 20% Correlation of coefficient (p) 0.4
Consider two stocks, Stock D, with an expected return of 13 percent and a standard deviation of 27 percent, and Stock I, an international company, with an expected return of 16 percent and a standard deviation of 44 percent. The correlation between the two stocks is -0.6. What is the weight of stock D in the minimum variance portfolio? (Do not round intermediate calculations. Round your answers to 4 decimal places.)
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA= 5.0% + 1.30RM + eA RB= -2.0% + 1.6RM + eB sigmaM= 20% ; R-squareA= 0.20 ; R-squareB= 0.12 What is the standard deviation of each stock (write as percentage, rounded to 2 decimal places)?
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.
Stocks A and B have the following probability distributions of expected future returns: Probability A B 0.1 (20%) (46%) 0.2 7 0 0.4 15 15 0.2 23 30 0.1 47 50 Calculate the standard deviation of returns for Stock A.
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA= 3.6 % + 1.20RM + eA RB = -1.6 % +1.50RM + eg OM = 16%; R-squareA = 0.25; R-squareg = 0.15 Break down the variance of each stock to the systematic and firm-specific components. (Do not round intermediate calculations. Calculate using numbers in decimal form, not percentages. Round your answers to 4 decimal places.) Risk for A Risk for B Systematic Firm-specific
Consider the following information: Probability of State of State of Economy Book Bust Economy 0.55 Variance Rate of Return if State Occurs Stock A Stock B 0.06 0.14 0.10 0.02 a. What is the expected return on an equally weighted portfolio of these three stocks? (Do not round intermediat Round the final answer to 2 decimal places.) Expected return b. What is the variance of a portfolio invested 25% each in A and B and 50% in C? (Do not round intermediate calc the final answer to 6 decimal places.) 10.65% Stock C 0.34 -0.07

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