Given: E(R₁) 0.06 E(R₂) = 0.13 E(0₁) = 0.04 E(0₂) = 0.06 Calculate the expected returns and expected standard deviations of a two-stock portfolio in which Stock 1 has a weight of 40 percent under the conditions given below. Do not round intermediate calculations. Round your answers for the expect returns of a two-stock portfolio to three decimal places and answers for expected standard deviations of a two-stock portfolio to four decimal places. a. 1,2 = 1.00 Expected return of a two-stock portfolio: Expected standard deviation of a two-stock portfolio: b. 1,2 = 0.75 Expected return of a two-stock portfolio: Expected standard deviation of a two-stock portfolio: C. 1.2 0.25 Expected return of a two-stock portfolio:

Given: E(R₁) 0.06 E(R₂) = 0.13 E(0₁) = 0.04 E(0₂) = 0.06 Calculate the expected returns and expected standard deviations of a two-stock portfolio in which Stock 1 has a weight of 40 percent under the conditions given below. Do not round intermediate calculations. Round your answers for the expect returns of a two-stock portfolio to three decimal places and answers for expected standard deviations of a two-stock portfolio to four decimal places. a. 1,2 = 1.00 Expected return of a two-stock portfolio: Expected standard deviation of a two-stock portfolio: b. 1,2 = 0.75 Expected return of a two-stock portfolio: Expected standard deviation of a two-stock portfolio: C. 1.2 0.25 Expected return of a two-stock portfolio:

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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Stocks A and B have the following probability distributions of expected future returns: Probability A B 0.1 (7 %) (26 %) 0.1 3 0 0.5 14 22 0.2 20 26 0.1 36 50 Calculate the expected rate of return, , for Stock B ( = 14.20%.) Do not round intermediate calculations. Round your answer to two decimal places. % Calculate the standard deviation of expected returns, σA, for Stock A (σB = 18.68%.) Do not round intermediate calculations. Round your answer to two decimal places. % Now calculate the coefficient of variation for Stock B. Do not round intermediate calculations. Round your answer to two decimal places. Is it possible that most investors might regard Stock B as being less risky than Stock A? If Stock B is less highly correlated with the market than A, then it might have a higher beta than Stock A, and hence be more risky in a portfolio sense. If Stock B is more highly correlated with the market than A, then it might have a higher…
Consider the following information on Stocks I and II: The market risk premium is 8 percent and the risk-free rate is 40.5 percent. a-1. What is the beta of each stock? Note: Do not round Intermedlate calculations. Round your answers to 2 decimal places. a-2. Which stock has the most systematic risk? Stock I Stock II b-1. What is the standard deviation of each stock? Note: Do not round Intermedlate calculations. Enter your answers as a percent rounded to 2 decimal places. b.2. Which one has the most unsystemstic risk? Stock I Stock II c. Which stock is "riskier"? Stock I Stock II
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA - 2.60 + 0.90RM + CA Rg- -2.00 + 1.20RM + eg OM- 26, R-equarea 0.21; R-squaren 0.12 Assume you create portfolio Pwith investment proportions of 0.70 in A and 0.30 in B. a. What is the standard deviation of the portfollo? (Do not round your intermediate calculations. Round your answer to 2 decimal places.) Standard deviation b. What is the beta of your portfolio? (Do not round your intermediate calculations. Round your answer to 2 decimal places.) Portfolio beta c. What is the firm-specific variance of your portfolio? (Do not round your intermediate calculations. Round your answer to 4 decimal places.) Firm-specific
You own a portfolio that has $1,600 invested in Stock A and $2,700 invested in Stock B. Assume the expected returns on these stocks are 11 percent and 17 percent, respectively. What is the expected return on the portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
A stock has an expected return of 12.7 percent, its beta is 1.80, and the risk-free rate is 3.2 percent. What must the expected return on the market be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Stocks A and B have the following probability distributions of expected future returns: a. Calculate the expected rate of return, B, for Stock B (A = 12.50%.) Do not round intermediate calculations. Round your answer to two decimal places. % b. Calculate the standard deviation of expected returns, GA, for Stock A (σ = 20.90%.) Do not round intermediate calculations. Round your answer to two decimal places. % Now calculate the coefficient of variation for Stock B. Do not round intermediate calculations. Round your answer to two decimal places. Is it possible that most investors might regard Stock B as being less risky than Stock A? I. If Stock B is more highly correlated with the market than A, then it might have a lower beta than Stock A, and hence be less risky in a portfolio sense. II. If Stock B is more highly correlated with the market than A, then it might have the same beta as Stock A, and hence be just as risky in a portfolio sense. III. If Stock B is less highly correlated with…
A portfolio is invested 24 percent in Stock G, 39 percent in Stock J, and 37 percent in Stock K. The expected returns on these stocks are 10.5 percent, 13 percent, and 18.4 percent, respectively. What is the portfolio's expected return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Stocks A and B have the following probability distributions of expected future returns: Probability A B 0.1 (5 %) (38 %) 0.2 5 0 0.5 14 21 0.1 23 27 0.1 28 38 Calculate the expected rate of return, , for Stock B ( = 12.60%.) Do not round intermediate calculations. Round your answer to two decimal places. % Calculate the standard deviation of expected returns, σA, for Stock A (σB = 20.20%.) Do not round intermediate calculations. Round your answer to two decimal places. % Now calculate the coefficient of variation for Stock B. Do not round intermediate calculations. Round your answer to two decimal places. Assume the risk-free rate is 2.5%. What are the Sharpe ratios for Stocks A and B? Do not round intermediate calculations. Round your answers to four decimal places. Stock A: Stock B:
You have a portfolio consisting solely of Stock A and Stock B. The portfolio has an expected return of 10.9 percent. Stock A has an expected return of 13.4 percent while Stock B is expected to return 7.3 percent. What is the portfolio weight of Stock A? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
If a stock's expected return plots on or above the SML, then the stock's return is SML, the stock's return is to compensate the investor for risk. cent to compensate the investor for risk. If a stock's expected return plots below the The SML line can change due to expected Inflation and risk aversion. If inflation changes, then the SML plotted on a graph will shift up or down parallel to the old SML. If risk aversion changes, then the SML plotted on a graph will rotate up or down becoming more or less steep if investors become more or less risk averse. A firm can influence market risk (hence its beta coefficient) through changes in the composition of its assets and through changes in the amount of debt it uses. Quantitative Problem: You are given the following information for Wine and Cork Enterprises (WCE): Tar 4%; 10 % ; RPM 6%, and beta - 1.1 What is WCE's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places. -75 % If inflation…
You are given the returns for the following three stocks: Stock B Stock C Stock A 14.00% 14.00% -19.00% 14.00 14.00 34.00 14.00 22.00 37.00 14.00 14.00 14.00 4.00 Year 1 2 3 4 5 7.00 13.00 Calculate the arithmetic return, geometric return, and standard deviation for each stock. Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Arithmetic return Standard deviation Geometric return Stock A 14.01 % 0.00 % 14.01 % Stock B 14.00 % 14.01 % Stock C 14.00 % 14.02 %
Using the CAPM, estimate the appropriate required rate of return for the three stocks listed here, given that the risk-free rate is 4 percent and the expected return for the market is 17 percent. STOCK BETA A 0.63 B 0.95 C 1.48 a. Using the CAPM, the required rate of return for stock A is B.Using the CAPM, the required rate of return for stock b is C.Using the CAPM, the required rate of return for stock C is (Round to two decimal places.)

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