6. Microsoft has an Expected Return of 44%, and standard deviation of 24%. Wal-Mart has anexpected return of 23%, and a standard deviation of 14%. The correlation between Wal-Martand Microsoft is 0.7. What is the standard deviation of a portfolio that invests 25% in Mi-crosoft and 75% in Wal-Mart?A) You don't have enough informationB) 15.3%C) 5.7%D) 12.2%E) 17.4%

Expected return of Microsoft is 44% Standard deviation "SD" of Microsoft is 24% Walmart's standard…

Microsoft has an Expected Return of 44%, and standard deviation of 24%. Wal-Mart has a expected return of 23%, and a standard deviation of 14%. The correlation between Wal-Ma and Microsoft is 0.7. What is the standard deviation of a portfolio that invests 25% in M crosoft and 75% in Wal-Mart? A) You don't have enough information B) 15.3% C) 5.7% D) 12.2% E) 17.4%

Microsoft has an Expected Return of 44%, and standard deviation of 24%. Wal-Mart has a expected return of 23%, and a standard deviation of 14%. The correlation between Wal-Ma and Microsoft is 0.7. What is the standard deviation of a portfolio that invests 25% in M crosoft and 75% in Wal-Mart? A) You don't have enough information B) 15.3% C) 5.7% D) 12.2% E) 17.4%

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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1. Suppose your expectations regarding the stock market are as follows: State of the Probability HPR Economy Boom 0.3 33% Normal growth 0.3 19 Recession 0.4 -15 a. What is the expected return, variance and standard deviation? 2. Assume that you manage a risky portfolio with an expected rate of return of 13% and a standard deviation of 29%. The T-bill rate is 5%. Your client chooses to invest 75% of a portfolio in your fund and 25% in a T-bill money market fund. a. What is the expected return and standard deviation of your client's portfolio? b. What is the reward-to-volatility ratio (S) of your risky portfolio and your client's overall portfolio? Explain the sharp ratio.
6) An investor holds a portfolio of stocks and is considering investing in the DBB Company. The firm's prospects look neutral, and you estimate the following probability distribution of possible returns: Conditions Recession P Returns on DBB Returns on DVI 0.12 -33% -12% Below Average 0.15 -18% 7% Average 0.46 12% 11% Above Average 0.15 25% 23% Boom 0.12 37% 25% a) How much is the expected return for DBB? b) How much is the coefficient of variation for DBB? c) Now let's say you want to add another asset, DVI, to your portfolio. You sell 35% of DBB to purchase DVI. How much is your expected return for this portfolio? d) How much is the coefficient of variation for the new portfolio?
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Unthank Corp. has a volatility of 15% and a correlation with the market portfolio of 0.5. If the volatility of the market portfolio is 10%, the expected return on the market is 10% and the risk-free rate is 3%, the expected return for Unthank Corp. is closest to 10% 9.25% 5.75% 8.25%
Suppose there are two independent economic factors, M₁ and M₂. The risk-free rate is 6%, and all stocks have independent firm- specific components with a standard deviation of 46%. Portfolios A and B are both well diversified. Portfolio A Beta on M₁ 1.5 2.0 Beta on My 2.1 -0.6 Required: What is the expected return-beta relationship in this economy? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected return-beta relationship E(rp) = Expected Return (%) 36 14 45 60 Answer is not complete. Bp1 Bp2
Consider an economy with two types of firms, S and I. S firms all move together. I firms move independently. For both types of firms, there is a 64% probability that the firm will have a 25% return and a 36% probability that the firm will have a -2% return. What is the volatility (standard deviation) of a portfolio that consists of an equal investment in: a. 40 firms of type S? b. 40 firms of type l? a. What is the volatility (standard deviation) of a portfolio that consists of an equal investment in 40 firms of type S? Standard deviation is%. (Round to two decimal places.)
Consider the following expected returns, volatilities, and correlations: Stock Duke Energy Microsoft Wal-Mart Expected Standard Correlation with Correlation with Correlation with Return Duke Energy Deviation 14% 6% 44% 24% 23% 14% 1.0 -1.0 0.0 Microsoft -1.0 1.0 0.7 Wal-Mart 0.0 0.7 1.0 a) Consider a portfolio consisting of only Duke Energy and Microsoft. What is the percentage of your investment (portfolio weight) that you would place in Duke Energy stock to achieve a risk-free investment. b) What are the expected return and volatility of a portfolio that consists of a long position of $10,000 in Wal-Mart and a short position of $2000 in Microsoft? c) What are the expected return and platility of a portfolio that has $3000 invested in Duke Energy, $4000 invested in Microsoft, and $3000 invested in Walmart stock?
Suppose that there are two independent economic factors, F1 and F2, the risk-free rate is 6%, and all stocks have independent firm-specific components with a standard deviation of 30%. The following are well-diversified portfolios: Portfolio Beta on F1 Beta on F2 Expected Return A 1.1 1.5 15% B 0.9 0.5 13% What is the expected return-beta relationship in this economy?
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F1. The ordinary equity of MB Construction has a beta of 1.47 and an actual expected return of 15.26%. The risk-free rate of return is 4.3% and the market rate of return is 12.01%. Which one of the following statements is true given this information? (a) The actual expected return will graph above the Security Market Line (b) The equity is under-priced (c) The equity has less systematic risk than the overall market (d) The actual expected return indicates the equity is currently overpriced (e) Both (c) and (d) are correct. Which one of the following states that a firm's cost of equity capital is directly and proportionally related to the firm's capital structure? (a) M&M Proposition I (b) M&M Proposition II (c) Capital Asset Pricing Model (d) Law of one Price

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