Consider the following information: Probability of State of State of Economy Boom Good Poor Bust a. b-1. Economy 15 .45 .35 .05 Rate of Return if State Occurs Stock A .36 .21 -.03 -.17 Stock B Stock C .26 10 .46 .17 -.06 -.21 -.04 -.07 Your portfolio is invested 22 percent each in A and C, and 56 percent in B. What is the expected return of the portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) What is the variance of this portfolio? (Do not round intermediate calculations and 461611

Consider the following information: Probability of State of State of Economy Boom Good Poor Bust a. b-1. Economy 15 .45 .35 .05 Rate of Return if State Occurs Stock A .36 .21 -.03 -.17 Stock B Stock C .26 10 .46 .17 -.06 -.21 -.04 -.07 Your portfolio is invested 22 percent each in A and C, and 56 percent in B. What is the expected return of the portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) What is the variance of this portfolio? (Do not round intermediate calculations and 461611

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 on Stocks I and II: State of Economy Recession Normal Irrational exuberance. Probability of State) of Econony 15 .70 .15 a. Stock I beta Stock Il beta. b. Stock I standard deviation Stock Il standard deviation Rate of Return if State Occurs. Stock I Stock II 05 18 07 The market risk premium is 7 percent, and the risk-free rate is 3.5 percent. a. Calculate the beta of each stock. Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. b. Calculate the standard deviation of each stock. c. More systematic nsk d. More unsystematic risk e. "Riskier stock Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. c. Which stock has the most systematic risk? d. Which one has the most unsystematic risk? e. Which stock is "riskler"? -.21 .10 39 % %
Consider the following information: Rate of Return If State Occurs State of Probability of State of Economy Economy Boom .60 Stock A .08 Stock B .16 Stock C .34 Bust .40 .18 .08 -.07 a. What is the expected return on an equally weighted portfolio of these three stocks? (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 18 percent each in A and B and 64 percent in C? (Do not round intermediate calculations and round your answer to 6 decimal places, e.g., .161616.) a. Expected return % b. Variance
Consider the following information about three stocks: Probability 0.22 State of Economy Boom Normal Bust 0.53 0.25 Stock A 0.24 0.00 0.17 -0.28 Stock B 0.36 0.13 -0.45 Stock C 0.55 0.09 Instructions: a) If your portfolio is invested 40% each in A and B and 20% in C, what is the portfolio expected return? The variance? The standard deviation? b) If the expected T-bill rate is 3.80%, the expected inflation rate is 3.50% what are the approximate and exact expected real returns on the portfolio? what is the approximate real risk premium? Show your steps.
1. Suppose your expectations regarding the stock market are as follows: State of the Probability HPR Economy Boom 0.3 33% Normal growth 0.3 19 Recession 0.4 -15 a. What is the expected return, variance and standard deviation? 2. Assume that you manage a risky portfolio with an expected rate of return of 13% and a standard deviation of 29%. The T-bill rate is 5%. Your client chooses to invest 75% of a portfolio in your fund and 25% in a T-bill money market fund. a. What is the expected return and standard deviation of your client's portfolio? b. What is the reward-to-volatility ratio (S) of your risky portfolio and your client's overall portfolio? Explain the sharp ratio.
Consider the following scenario analysis: Scenario Recession Normal economy Boom Assume a portfolio with weights of 0.60 in stocks and 0.40 in bonds. a. What is the rate of return on the portfolio in each scenario? b. What are the expected rate of return and standard deviation of the portfolio? Required A Probability 0.3 0.6 0.1 Required B Recession Normal economy Boom Rate of Return Complete this question by entering your answers in the tabs below. Stocks -5% 13 24 Rate of Return % % 15.6 % Bonds 12% 9 3 What is the rate of return on the portfolio in each scenario? Note: Enter your answer as a percent rounded to 1 decimal place.
Consider the following information on a portfolio of three stocks: State of Probability of Economy State of Economy Boom .12 Normal Bust .33 Stock A Rate of Return .07 .16 Stock B Rate of Return .32 .27 -.26 Stock Rate of Return .45 .25 -.35 a. 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. bIf the expected T-bill rate is 4.5 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 . % a. Expected return Variance Standard deviation % b. Expected risk premium %
Consider the following information: State of Economy Probability of State of Economy Boom Bust .68 :32 a. Expected return b. Variance of portfolio Rate of Return if State Occurs Stock A Stock B Stock C .11. .15 .05 .21 .26 -.06 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 23 percent each in A and B and 54 percent in C? Note: Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161.
Consider the following scenario analysis: Scenario Recession Normal economy Boom Required A Probability 0.3 0.4 0.3 Assume a portfolio with weights of 0.60 in stocks and 0.40 in bonds. a. What is the rate of return on the portfolio in each scenario? b. What are the expected rate of return and standard deviation of the portfolio? Rate of Return Stocks Bonds 12% 7 3 Complete this question by entering your answers in the tabs below. Required B Expected return Standard deviation -4% 13 22 What are the expected rate of return and standard deviation of the portfolio? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places % %
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
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.
Consider the following information: State of Probability of State of Economy .60 40 Economy Boom Bust Rate of Return If State Occurs Stock A .15 .18 Stock B .23 .08 Stock C .42 -.09 What is the expected return of a portfolio equally invested in stocks A, B, and C? Round to the nearest XX.XX%
2. Consider the following information: STATE ECONOMY Boom Good Poor Bust OF PROBABILITY OF RATE OF RETURN IF STATE OCCURS OF FIRM A FIRM B STATE ECONOMY 0.15 0.55 0.20 0.10 0.33 0.11 0.02 -0.12 0.45 0.10 0.02 -0.25 FIRM C b. What is the variance of this portfolio? The standard deviation? 0.33 0.17 -0.05 -0.09 a. Your portfolio is invested 25% each in A and C and 50% in B. What is the expected return of the portfolio?

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