Expected return of a portfolio using beta. The beta of four stocks-P, Q, R, and S-are 0.60, 0.85, 1.20, and 1.35, respectively and the beta of portfolio 1 is 1.00, the beta of portfolio 2 is 0.90, and the beta of portfolio 3 is 1.12. What are the expected returns of each of the four individual assets and the three portfolios if the current SML is plotted with an intercept of 3.0% (risk-free rate) and a market premium of 11.0% (slope of the line)? What is the expected return of stock P? % (Round to two decimal places.)

Expected return of a portfolio using beta. The beta of four stocks-P, Q, R, and S-are 0.60, 0.85, 1.20, and 1.35, respectively and the beta of portfolio 1 is 1.00, the beta of portfolio 2 is 0.90, and the beta of portfolio 3 is 1.12. What are the expected returns of each of the four individual assets and the three portfolios if the current SML is plotted with an intercept of 3.0% (risk-free rate) and a market premium of 11.0% (slope of the line)? What is the expected return of stock P? % (Round to two decimal places.)

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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The beta of a portfolio is: A. A measure of the correlation of betas of the securities in the portfolio. B. Always greater than one. C. The market value weighted average beta of the securities in the portfolio. D. The geometric average of the beta of the securities in the portfolio.
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 2.60% + 0.90RM + eA RB = -2.00% + 1.20RM + eB OM = 26%; R-squarea = 0.21; R-squareg = 0.12 Assume you create portfolio P with investment proportions of 0.70 in A and 0.30 in B.
(Portfolio beta and security market line) You own a portfolio consisting of the following stocks: The risk-free rate is 8 percent. Also, the expected return on the market portfolio is 18 percent. a. Calculate the expected return of your portfolio. (Hint: The expected return of a portfolio equals the weighted average of the individual stock's expected return, where the weights are the percentage invested in each stock.) b. Calculate the portfolio beta. c. Given the preceding information, plot the security market line on paper. Plot the stocks from your portfolio on your graph. d. From your plot in part c, which stocks appear to be your winners and which ones appear to be losers? e. Why should you consider your conclusions in part d to be less than certain? a. The expected return of your portfolio is%. (Round to two decimal places.) Data table Stock 1 2 (...)) Percentage of Portfolio 30% 35% 5% 15% 15% Beta 1.05 0.80 1.25 0.62 1.62 3 4 5 (Click on the icon in order to copy its contents…
Asset A has a standard deviation of 0.17, and asset B has a standard deviation of 0.52. Assets A and B have a correlation coefficient of 0.44. What is the standard deviation of a portfolio consisting with a weight of 0.40 in asset A, a weight of 0.24 in asset B, and the remainder invested in a risk-free asset? Give your answer to four decimal places.
You are examining a portfolio consisting of three stocks. Using the data in the table a. Compute the annual returns for a portfolio with 25% invested in North Air, 25% invested in West Air, and 50% invested in Tex Oil. b. What is the lowest annual return for your portfolio in part (a)? How does it compare with the lowest annual return of the individual stocks or portfolios in the table above. a. Compute the annual returns for a portfolio with 25% invested in North Air, 25% invested in West Air, and 50% invested in Tex Oil. The annual return for 2014 will be: (Round to two decimal places.) Year 2014 Year 2016 North Air 21% Year 2018 North Air The annual return for 2015 will be: (Round to two decimal places.) Year 2019 29% 6% Year 2015 The annual return for 2016 will be: (Round to two decimal places.) North Air North Air West Air West Air -6% 8% North Air -1% West Air North Air 21% 8% 6% The annual return for 2017 will be: (Round to two decimal places.) West Air Year 2017 The annual…
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Expected return of a portfolio using beta. The beta of four stocks-P, Q, R, and S-are 0.59, 0.89, 1.05, and 1.31, respectively and the beta of portfolio 1 is 0.96, the beta of portfolio 2 is 0.87, and the beta of portfolio 3 is 1.05. What are the expected returns of each of the four individual assets and the three portfolios if the current SML is plotted with an intercept of 4.5% (risk-free rate) and a market premium of 12.0% (slope of the line)? ..... What is the expected return of stock P? % (Round to two decimal places.)
You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset: Portfolio Y Z Market Risk-free Rp 16.00% бр 32.00% 15.00 27.00 7.30 17.00 11.30 5.80 22.00 0 Bp 1.90 1.25 0.75 1.00 0 Assume that the tracking error of Portfolio X is 13.40 percent. What is the information ratio for Portfolio X? Note: A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 4 decimal places. Information ratio
Portfolio theory with two assets E(R1)=0.15 E(01)= 0.10 W1=0.5 E(R2)=0.20 E(02) = 0.20 W2=0.5 Calculate the expected return and the standard deviation of the two portfolios if r1,2 = 0.4 and -0.60 respectively.
Considering the attached set of securities and portfolio returns: Find the combination of the weights that minimizes CV of the portfolio. How does the CV of the optimal portfolio compare with the CVs of its constituents?
Portfolio theory with three assets Estimated covariances between three stocks are shown in the following table. The expected returns for the three stocks are 11% (A), 9% (B) and 4% (C), respectively A B C A 0.0225 0.0030 -0.0009 B 0.0030 0.0100 -0.0012 -0.0009 -0.0012 0.0036 Note: All returns and covariance matrix are on an annual basis A) Calculate the expected return and standard deviation of the portfolio if it is equally split between A and B B) Calculate the expected return and standard deviation of the portfolio if it is equally split between A,B and C C) Compare the portfolio in answer (a) and the portfolio in answer (b) using the sharpe ratio. Assuming the current annual risk-free rate is 3%
The index model has been estimated for stocks A and B with the following results: RA 0.01 +0.5RM + A RB = 0.02 +1.3RM + eB standard deviation of the market is 0.25, standard deviation of eA is 0.2 and standard deviation of eB is 0.10 What is the covariance betwween the returns on stocks A and B?.

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