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 Expected Return Standard Deviation Beta 9.22 % A 16 % 0.8 11.08 16 1.2 C 12.94 16 1.6 Fund P has one-third of its funds invested in each of the three stocks. The risk-free rate is 5.5%, 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. Open spreadsheet a. What is the market risk premium (rM-rRE)? 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 16%, equal to 16%, or greater than 16%? . less than 16% lI. greater than 16% III. equal to 16% A F G н К L CAPM, portfolio risk, and 1 retum Risk-Free Rate, rRF 5.50% Stock A Formula Stock B Formula Stock C Formula Expected Return 9.22% 11.08% 12.94% Standard Deviation 16.00% 16.00% 16,00% Beta 0.80 120 160 Market Risk Premium, RPM #N/A #N/A #N/A 11 12 0.333333 % Stock in Fund P 0.333333 0.333333 Beta of Fund P #N /A 16 Required Return of FundP #N/A. 17 18 Expected Return of Fund P #N/A 19 20. ш B
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 Expected Return Standard Deviation Beta 9.22 % A 16 % 0.8 11.08 16 1.2 C 12.94 16 1.6 Fund P has one-third of its funds invested in each of the three stocks. The risk-free rate is 5.5%, 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. Open spreadsheet a. What is the market risk premium (rM-rRE)? 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 16%, equal to 16%, or greater than 16%? . less than 16% lI. greater than 16% III. equal to 16% A F G н К L CAPM, portfolio risk, and 1 retum Risk-Free Rate, rRF 5.50% Stock A Formula Stock B Formula Stock C Formula Expected Return 9.22% 11.08% 12.94% Standard Deviation 16.00% 16.00% 16,00% Beta 0.80 120 160 Market Risk Premium, RPM #N/A #N/A #N/A 11 12 0.333333 % Stock in Fund P 0.333333 0.333333 Beta of Fund P #N /A 16 Required Return of FundP #N/A. 17 18 Expected Return of Fund P #N/A 19 20. ш B
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
Related questions
Question
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
Expected Return
Standard Deviation
Beta
9.22 %
A
16 %
0.8
11.08
16
1.2
C
12.94
16
1.6
Fund P has one-third of its funds invested in each of the three stocks. The risk-free rate is 5.5%, 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.
Open spreadsheet
a. What is the market risk premium (rM-rRE)? 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 16%, equal to 16%, or greater than 16%?
. less than 16%
lI. greater than 16%
III. equal to 16%
Transcribed Image Text:A
F
G
н
К
L
CAPM, portfolio risk, and
1
retum
Risk-Free Rate, rRF
5.50%
Stock A
Formula
Stock B
Formula
Stock C
Formula
Expected Return
9.22%
11.08%
12.94%
Standard Deviation
16.00%
16.00%
16,00%
Beta
0.80
120
160
Market Risk Premium, RPM
#N/A
#N/A
#N/A
11
12
0.333333
% Stock in Fund P
0.333333
0.333333
Beta of Fund P
#N /A
16 Required Return of FundP
#N/A.
17
18
Expected Return of Fund P
#N/A
19
20.
ш
B
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education