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

See similar textbooks

Similar questions

The stock market can have three potential returns with the following probabilities. Note "otherwise" is whatever probability it takes for all three probabilities to sum to one. So, if the first two probabilities are each .30, then "otherwise" represents a probability of .40. Probability Return -0.04 0.24 0.38 otherwise 0.00 0.18 What is the stock market's standard deviation? Enter your answer in decimal form, and show 4 decimal places.
You run a regression for the Tesla stock return on a market index to estimate the SML equation and find the following Excel output: Multiple R R-Square Adjusted R-Square Standard Error Observations Intercept Market = 0.28 0.25 0.02 40.01 60 13.35 and 0.97 0.8 and 0.1 0.28 and 0.25 0.26 and 1.36 0.2 and 0.75 Coefficients Standard Error t-Stat p-Value 0.2 0.75 The resulting SML equation for Laternios is given by: Er Laternios] 13.35 0.26 0.80 0.97 1.36 0.10 + __ × (E[rM] - rf)
Consider the following collection of n = 9 closing prices for stock ABC:101.02, 102.23, 100.34, 99.87, 98.65, 96.45, 98.45, 99.00, 100.05Compute the standard estimator of the volatility parameter σ using these closing prices.
Problem 2. Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 2.00% + 1.10RM + A RB = -0.60% + 0.90RM + eB The R-squared of the estimate for stock A is 0.35 and the R-squared of the estimate for stock B is 0.40. The standard deviation of the market is OM = 30%. Assume you create portfolio P with weights of 120% in A and -20% in B. These weights mean that you go long stock A and short stock B. a) What is the standard deviation of the portfolio? [Hint: R-squared is the variance explained by the market risk B²o divided by the variance in the stock o}.] b) What is the beta of the portfolio? c) What is the firm-specific variance of the portfolio? (Round to 3 decimals.)
Stocks A and B have the following probability distributions of expected future returns: a. Calculate the expected rate of return, TB, for Stock B (A = 13.80%.) Do not round intermediate calculations. Round your answer to two decimal places. % Probability 0.1 0.1 0.5 0.2 0.1 b. Calculate the standard deviation of expected returns, JA, for Stock A (OB = 20.40%.) Do not round intermediate calculations. Round your answer to two decimal places. % -Select- A (11%) 6 13 20 38 Now calculate the coefficient of variation for Stock B. Do not round intermediate calculations. Round your answer to two decimal places. B (34%) 0 24 30 44 Is it possible that most investors might regard Stock B as being less risky than Stock A? I. If Stock B is less 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 less highly correlated with the market than A, then it might have a higher beta than Stock A, and hence be…
The index model has been estimated from the excess returns for stock A with the following results: = RA 12.00% +1.55RM+ eA °M = 24.00% σ(eд) = 18.50% What is the standard deviation of the return for stock A? (Round your answer to 2 decimal places.) Standard deviation %
Please do both questions QUESTION 1 Assume the following data for a stock: beta = 0.9; risk-free rate = 4 percent; market rate of return = 24 percent; and expected rate of return on the stock = 23 percent. Then the stock is: correctly priced. overpriced. this is the wrong answer underpriced. The answer cannot be determined. QUESTION 2 Assume the following data for a stock: beta = 1.5; risk-free rate = 8 percent; market rate of return = 18 percent; and expected rate of return on the stock = 22 percent. Then the stock is: overpriced. underpriced. this is the wrong answer correctly priced. cannot be determined
Stocks A and B have the following probability distributions of expected future returns: Probability A B 0.1 (10 %) (34 %) 0.2 4 0 0.4 14 23 0.2 18 28 0.1 30 39 Calculate the expected rate of return, , for Stock B ( = 12.00%.) Do not round intermediate calculations. Round your answer to two decimal places. % Calculate the standard deviation of expected returns, σA, for Stock A (σB = 20.05%.) 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 3.5%. 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:
The index model has been estimated using historical excess return data for stocks A, B, and C, with the following results: RA = 0.02 + 0.9RM + eA RB = 0.04 + 1.2RM + eB RC = 0.10 + 1.ORM + eC OM oM = 0.22 o(eA) = 0.21 o(eB ) = 0.11 o(eC ) = 0.23 a. What are the standard deviations of stocks A, B, and C? b. Break down the variances of stocks A, B, and C into their systematic and firm-specific components. c. What is the covariance between the returns on each pair of stocks? d. What is the covariance between each stock and the market index?
Please solve this practice problem
Required Rate of Return Stock R has a beta of 1.8, Stock S has a beta of 0.35, the expected rate of return on an average stock is 12%, and the risk-free rate is 7%. By how much does the required return on the riskier stock exceed that on the less risky stock? Do not round intermediate calculations. Round your answer to two decimal places.
A stock's return has the following distribution: Demand for theCompany's Products Probability of ThisDemand Occurring Rate of Return if ThisDemand Occurs (%) Weak 0.1 -20 % Below average 0.2 -8 Average 0.4 17 Above average 0.2 35 Strong 0.1 65 1.0 Calculate the stock’s expected return and standard deviation. Do not round intermediate calculations. Round your answers to two decimal places. Expected return: % Standard deviation: %

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

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

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

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

SEE MORE TEXTBOOKS