I1 12 1 3 1 4 15 '7 1 8 1 9 1 10 1 11 I 12 1 13 1 14 I · 15 9 1 1. 1. Based on the following information Calculate State of Economy Probability of State of Economy Rate of Return if State Occurs Stock A Stock B Recession 0.20 0.05 -0.17 Normal 0.55 0.08 0.12 Boom 0.25 0.13 a) The expected return of Stock A b) The expected return of Stock B c) The expected return of Portfolio where you invest $35,000 in Stock A and $45,000 in Stock B d) Suppose Stock A has a beta of 0.8 and Stock B has a beta of 1.3. If you invest $35,000 in Stock and $45,000 in Stock B, what is the beta of this portfolio? e) Expected return on the market (R) is 10% and the risk-free (r.) is 4%. What must the the expected return on the portfolio according to CAPM? (Use the beta you have calculated in sectic for CAPM)
I1 12 1 3 1 4 15 '7 1 8 1 9 1 10 1 11 I 12 1 13 1 14 I · 15 9 1 1. 1. Based on the following information Calculate State of Economy Probability of State of Economy Rate of Return if State Occurs Stock A Stock B Recession 0.20 0.05 -0.17 Normal 0.55 0.08 0.12 Boom 0.25 0.13 a) The expected return of Stock A b) The expected return of Stock B c) The expected return of Portfolio where you invest $35,000 in Stock A and $45,000 in Stock B d) Suppose Stock A has a beta of 0.8 and Stock B has a beta of 1.3. If you invest $35,000 in Stock and $45,000 in Stock B, what is the beta of this portfolio? e) Expected return on the market (R) is 10% and the risk-free (r.) is 4%. What must the the expected return on the portfolio according to CAPM? (Use the beta you have calculated in sectic for CAPM)
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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Transcribed Image Text:I1 12 1 3 1 4 15
'7 1 8 1 9 1 10 1 11 I 12 1 13 1 14 I · 15
9 1
1.
1. Based on the following information Calculate
State of Economy Probability of State of Economy
Rate of Return if State Occurs
Stock A
Stock B
Recession
0.20
0.05
-0.17
Normal
0.55
0.08
0.12
Boom
0.25
0.13
a) The expected return of Stock A
b) The expected return of Stock B
c) The expected return of Portfolio where you invest $35,000 in Stock A and $45,000 in Stock B
d) Suppose Stock A has a beta of 0.8 and Stock B has a beta of 1.3. If you invest $35,000 in Stock
and $45,000 in Stock B, what is the beta of this portfolio?
e) Expected return on the market (R) is 10% and the risk-free (r.) is 4%. What must the the
expected return on the portfolio according to CAPM? (Use the beta you have calculated in sectic
for CAPM)
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