Investment Standard Assets Expected return Correlation Beta weight Deviation Asset A 15.00% 30.00% 45.00% Corr A.B = 0.60 1.21 Asset B 45.00% 24.00% 20.00% Corr A.C = -0.45 1.17 Asset C 40.00% 16.00% 15.00% Corr B.C = 0.24 0.65 Questions 1. Calculate expected return of portfolio with all 3 risky assets 2. Calculate Standard deviation of portfolio with all 3 risky assets 3. Assume you sell out Asset A, and replace it with T-Bill, using the same investment weight. Calculate expected return of portfolio of T-Bill and 2 risky assets (Asset B, and C) Answers % % % 4. Assume you sell out Asset A, and replace it with T-Bill, using the same investment weight. Calculate standard deviation of portfolio of T-Bill and 2 risky assets (Asset B, and C) % 5. Calculate beta of portfolio with all 3 risky assets (round to 2 digits after decimal). 6. Use CAPM, calculate required rate of return of all 3 risky assets. 7. Use CAPM, assume you add a new asset, Asset D, into portfolio. You adjust your portfolio by investing in all 4 assets, and each with equal weight of investment. Beta of Asset D is 0.36. Calculate beta of portfolio with all 4 risky assets. 8. From question 7, use CAPM and calculate required rate of return of portfolio with all 4 risky assets. % %
Investment Standard Assets Expected return Correlation Beta weight Deviation Asset A 15.00% 30.00% 45.00% Corr A.B = 0.60 1.21 Asset B 45.00% 24.00% 20.00% Corr A.C = -0.45 1.17 Asset C 40.00% 16.00% 15.00% Corr B.C = 0.24 0.65 Questions 1. Calculate expected return of portfolio with all 3 risky assets 2. Calculate Standard deviation of portfolio with all 3 risky assets 3. Assume you sell out Asset A, and replace it with T-Bill, using the same investment weight. Calculate expected return of portfolio of T-Bill and 2 risky assets (Asset B, and C) Answers % % % 4. Assume you sell out Asset A, and replace it with T-Bill, using the same investment weight. Calculate standard deviation of portfolio of T-Bill and 2 risky assets (Asset B, and C) % 5. Calculate beta of portfolio with all 3 risky assets (round to 2 digits after decimal). 6. Use CAPM, calculate required rate of return of all 3 risky assets. 7. Use CAPM, assume you add a new asset, Asset D, into portfolio. You adjust your portfolio by investing in all 4 assets, and each with equal weight of investment. Beta of Asset D is 0.36. Calculate beta of portfolio with all 4 risky assets. 8. From question 7, use CAPM and calculate required rate of return of portfolio with all 4 risky assets. % %
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
Related questions
Question
Transcribed Image Text:Investment
Standard
Assets
Expected return
Correlation
Beta
weight
Deviation
Asset A
15.00%
30.00%
45.00%
Corr A.B
= 0.60
1.21
Asset B
45.00%
24.00%
20.00%
Corr A.C
= -0.45
1.17
Asset C
40.00%
16.00%
15.00%
Corr B.C
= 0.24
0.65
Questions
1. Calculate expected return of portfolio with all 3 risky assets
2. Calculate Standard deviation of portfolio with all 3 risky assets
3. Assume you sell out Asset A, and replace it with T-Bill, using the same
investment weight. Calculate expected return of portfolio of T-Bill and 2 risky
assets (Asset B, and C)
Answers
%
%
%
4. Assume you sell out Asset A, and replace it with T-Bill, using the same
investment weight. Calculate standard deviation of portfolio of T-Bill and 2 risky
assets (Asset B, and C)
%
5. Calculate beta of portfolio with all 3 risky assets (round to 2 digits after
decimal).
6. Use CAPM, calculate required rate of return of all 3 risky assets.
7. Use CAPM, assume you add a new asset, Asset D, into portfolio. You adjust
your portfolio by investing in all 4 assets, and each with equal weight of
investment. Beta of Asset D is 0.36. Calculate beta of portfolio with all 4 risky
assets.
8. From question 7, use CAPM and calculate required rate of return of portfolio
with all 4 risky assets.
%
%
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