Excel Online Structured Activity: CAPM, portfolio risk, and return Consider the following information for three stocks, Stocks A, B, and C. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.) Stock A B C Expected Return 8.64 % Standard Deviation Beta 14 % 0.8 10.46 12.28 14 14 1.2 1.6 Fund P has one-third of its funds invested in each of the three stocks. The risk-free rate is 5%, and the market is in equilibrium. (That is, required returns equal expected returns.) The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. X Open spreadsheet a. What is the market risk premium (гM - гRF)? Round your answer to two decimal places. % b. What is the beta of Fund P? Do not round intermediate calculations. Round your answer to two decimal places. c. What is the required return of Fund P? Do not round intermediate calculations. Round your answer to two decimal places. % d. Would you expect the standard deviation of Fund P to be less than 14%, equal to 14%, or greater than 14%? I. less than 14% II. greater than 14% III. equal to 14% ÷
Excel Online Structured Activity: CAPM, portfolio risk, and return Consider the following information for three stocks, Stocks A, B, and C. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.) Stock A B C Expected Return 8.64 % Standard Deviation Beta 14 % 0.8 10.46 12.28 14 14 1.2 1.6 Fund P has one-third of its funds invested in each of the three stocks. The risk-free rate is 5%, and the market is in equilibrium. (That is, required returns equal expected returns.) The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. X Open spreadsheet a. What is the market risk premium (гM - гRF)? Round your answer to two decimal places. % b. What is the beta of Fund P? Do not round intermediate calculations. Round your answer to two decimal places. c. What is the required return of Fund P? Do not round intermediate calculations. Round your answer to two decimal places. % d. Would you expect the standard deviation of Fund P to be less than 14%, equal to 14%, or greater than 14%? I. less than 14% II. greater than 14% III. equal to 14% ÷
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:Excel Online Structured Activity: CAPM, portfolio risk, and return
Consider the following information for three stocks, Stocks A, B, and C. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation
coefficients is between 0 and 1.)
Stock
A
B
C
Expected Return
8.64 %
Standard Deviation
Beta
14 %
0.8
10.46
12.28
14
14
1.2
1.6
Fund P has one-third of its funds invested in each of the three stocks. The risk-free rate is 5%, and the market is in equilibrium. (That is, required returns equal expected returns.) The data has been
collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.
X
Open spreadsheet
a. What is the market risk premium (гM - гRF)? Round your answer to two decimal places.
%
b. What is the beta of Fund P? Do not round intermediate calculations. Round your answer to two decimal places.
c. What is the required return of Fund P? Do not round intermediate calculations. Round your answer to two decimal places.
%
d. Would you expect the standard deviation of Fund P to be less than 14%, equal to 14%, or greater than 14%?
I. less than 14%
II. greater than 14%
III. equal to 14%
÷
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