Figure 12.11 shows plots of monthly rates of return on three stocks versus the stock market index. The beta and standard deviation of each stock is given beside its plot. Required: Consider a portfolio with equal investments in each stock. What would this portfolio’s beta have been? Consider a well-diversified portfolio made up of stocks with the same beta as Intel. What are the beta and standard deviation of this portfolio’s return? The standard deviation of the market portfolio’s return is 20%. What is the expected rate of return on each stock? Use the capital asset pricing model with a market risk premium of 8%. The risk-free rate of interest is 4%.
Figure 12.11 shows plots of monthly rates of return on three stocks versus the stock market index. The beta and standard deviation of each stock is given beside its plot. Required: Consider a portfolio with equal investments in each stock. What would this portfolio’s beta have been? Consider a well-diversified portfolio made up of stocks with the same beta as Intel. What are the beta and standard deviation of this portfolio’s return? The standard deviation of the market portfolio’s return is 20%. What is the expected rate of return on each stock? Use the capital asset pricing model with a market risk premium of 8%. The risk-free rate of interest is 4%.
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
Figure 12.11 shows plots of monthly
Required:
- Consider a portfolio with equal investments in each stock. What would this portfolio’s beta have been?
- Consider a well-diversified portfolio made up of stocks with the same beta as Intel. What are the beta and standard deviation of this portfolio’s return? The standard deviation of the market portfolio’s return is 20%.
- What is the expected rate of return on each stock? Use the
capital asset pricing model with a market risk premium of 8%. The risk-free rate of interest is 4%.
Transcribed Image Text:FIGURE 12.11 Monthly rates
of return for (a) Marathon Oil,
(b) Intel, and (c) Walmart, plus the
market portfolio.
FIGURE 12.11 (continued)
(a)
Marathon Oil retum (%)
(b)
Intel return (%)
-10%
-10%
(C)
Walmart return (%)
10%
- 5%
40%
-5%
30%
20%
10%
0%
.-20%
-5%
10%
-30%
Market return (%)
30%
25%
20% +
15%
10%
• 5%
-10%
-15%
30% T
25%
20% +
15% +
10% +
5% to
. 5%
• Beta = 2.35
-20%
Market return (%)
**
0%
Std dev = 48.4%
5%
+9%
-5%
-10% +
-15%
-20%
Market return (%)
Beta = .91
Std dev = 21.9%
10%
5%
10%
1
10%
Beta = .35
Std dev = 17.5%
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