ProbabilityState of of state ofEconomyBustBoomEconomy0.600.40Security Returns ifState OccursRollRoss-15%19%26%6%Calculate the expected return on a portfolio of 70 percent Roll and 30 percent Ross by filling in the following table:Note: A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your anspercent rounded to 2 decimal places.State ofEconomyProbabilityPortfolio Return ifof State ofEconomyProductState OccursBust0.60%%Boom0.40%%E(Rp)=ge%13

Security returns if states occurState of economyProbability of state of the…

Probability State of of State of Economy Bust Boom Economy 0.60 0.40 Security Returns if State Occurs Roll Ross -15% 19% 26% 6% Calculate the expected return on a portfolio of 70 percent Roll and 30 percent Ross by filling in the follow Note: A negative value should be indicated by a minus sign. Do not round intermediate calculations. percent rounded to 2 decimal places. State of Economy Probability of State of Economy Portfolio Return if State Occurs Product

Probability State of of State of Economy Bust Boom Economy 0.60 0.40 Security Returns if State Occurs Roll Ross -15% 19% 26% 6% Calculate the expected return on a portfolio of 70 percent Roll and 30 percent Ross by filling in the follow Note: A negative value should be indicated by a minus sign. Do not round intermediate calculations. percent rounded to 2 decimal places. State of Economy Probability of State of Economy Portfolio Return if State Occurs Product

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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es Security Returns if State Occurs State of Economy Probability of State of Economy Roll Ross Bust Boom 1.30 .70 -10% 14% 21 5 Calculate the expected return on a portfolio of 45 percent Roll and 55 percent Ross by filling in the following table: (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Probability State of Economy Portfolio Return if of State of Product State Occurs Economy Bust .30 % % Boom .70 % % E(Rp)= %
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State of Economy Boom Bust Probability of State of Economy .58 .42 Rate of Return if State Occurs Stock A Stock B Stock C .22 .40 .06 -.05 0.013340 X .14 .16 a. What is the expected return on an equally weighted portfolio of these three stocks? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the variance of a portfolio invested 22 percent each in A and B and 56 percent in C? (Do not round intermediate calculations and round your answer to 6 decimal places, e.g., .161616.) > Answer is complete but not entirely correct. a. Expected return 12.87% b. Variance
Probability State of of State of Economy Economy 0.40 0.60 Bust Boom State of Economy Bust Boom Calculate the expected return on a portfolio of 55 percent Roll and 45 percent Ross by filling in the following table: Note: A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Security Returns if State Occurs Probability of State of Economy Roll -17% 28% 0.40 0.60 Ross 18% 7% Answer is complete but not entirely correct. Portfolio Return if State Occurs 0.04 % 11.40 % E(Rp)= Product 5.50 X % 5.13 % 10.63 %
Consider the following information: State of Economy Boom Good Poor Bust Probability of State- of Economy a. 15 .55 .25 .05 a. Expected return b-1. Variance b-2. Standard deviation Rate of Return if State Occurs Stock A Stock B Stock C .39 .49 .29 .15 .20 .08 -.09 -.07 -.24 -.10 Your portfolio is invested 24 percent each in A and C, and 52 percent in B. What the expected return of the portfolio? (Do not round intermediate calculations a enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b-1. What is the variance of this portfolio? (Do not round intermediate calculations an round your answer to 5 decimal places, e.g., .16161.) b-2. What is the standard deviation? (Do not round intermediate calculations and ent your answer as a percent rounded to 2 decimal places, e.g., 32.16.) -.01 -.20 % %
Based on the current capitalization, KHM Sdn Bhd has made the following forecast for the coming year: Interest expense RM2,000,000 Operating income (EBIT) RM40,000,000 Earnings per share RM4.00 The company has RM20,000,000 worth of debt outstanding and all of its debt yields 10 %. The company’s tax rate is 30%. The company’s price earnings (P/E) ratio has traditionally been 10. The company’s investment bankers have suggested that the company recapitalize. Their suggestion is to issue enough new bonds at a yield of 10% to repurchase 1,400,000 shares of common stock. Assume that the repurchase will have no effect on the company’s operating income; however, the repurchase will increase the company’s dollar interest expense. Also, assume that as a result of the increased financial risk, the company’s price earnings (P/E) ratio will be 10.5x after the repurchase. What would be the expected year-end stock price if the company proceeded with the recapitalization? Should KHM proceed with the…
Question 2 You have the following information: A B C Market Alpha 1% 2% 3% 0% Beta 2 1.5 0.5 1 Res. 1.00% 2.00% 0.90% 0.00% Variance Std.Dev 9% 15% 12% 8% Excess 6% Return What is the alpha of the active portfolio? Note: Round to 3 decimals. The margin of error here is +/-0.01. D -2% 2 0.85% 11%
INV 2 -1 You are considering an investment in a portfolio P with the following expected returns in three different states of nature: Recession Steady Expansion Probability 0.10 0.55 0.35 Return on P -15% 20% 40% The risk-free rate is currently 4%, and the market portfolio M has an expected return of 16% and standard deviation of 20%, and its correlation with P is .7. Is P an efficient portfolio relative to the market?
Security Returns if State Occurs State of Economy Bust Boom Probability of State of Economy Roll Ross .60 40 -15% 19% 26 6 Calculate the expected return on a portfolio of 70 percent Roll and 30 percent Ross by filling in the following table: (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) State of Economy Probability of State of Economy Portfolio Return if Product State Occurs Bust .60 % Boom 40 % E(Rp) % % 5.12%
5 Consider the following information: Probability of State of State of Economy Boom Good Poor Bust Economy 15 .45 .35 .05 a. Rate of Return if State Occurs a. Expected return b-1. Variance b-2. Standard deviation Stock A Stock B Stock C .36 46 .26 .21 .17 10 -.03 -.17 Your portfolio is invested 22 percent each in A and C, and 56 percent in B. What is the expected return of the portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b-1. What is the variance of this portfolio? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161.) b-2. What is the standard deviation? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) % -.06 -.21 % -.04 -.07
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…
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