Problem 13-10 Returns and Standard Deviations [LO1] Consider the following information: Probability of State State of Economy of Economy Boom Good Poor Bust 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 43 23 18 05 Your portfolio is invested 26 percent each in A and C, and 48 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.) 10.86 % -08 -18 14.35 % -.06 -10

Problem 13-10 Returns and Standard Deviations [LO1] Consider the following information: Probability of State State of Economy of Economy Boom Good Poor Bust 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 43 23 18 05 Your portfolio is invested 26 percent each in A and C, and 48 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.) 10.86 % -08 -18 14.35 % -.06 -10

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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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%
A 133.
Question 25 (2.5 points) Listen The risk-free rate is 1.45% and the market risk premium is 5.21%. According to the Capital Asset Pricing Model (CAPM), a stock with a beta of 1.13 will have an %. expected return of 1) 7.34% 2) 15.66% 3) 5.56% 4) 9.12% 5) 13.25%
Consider the following information: State of Probability of Economy State of Economy 15 45 30 .10 Stock A Stock B Boom 32 42 Good 19 13 Poor -.05 -08 Bust -16 -,28 -09 Your portfolio is invested 30 percent each in A and C, and 40 percent in B. What is the standard deviation of this portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. Do not include a percent sign with your answer.) Numeric Response **** Rate of Return if State Occurs wwwww Stock C 33 12 -.06
INV 2 -1b 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. What is the portfolio P’s beta?
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1 what is the expected return on a portfolio that is invested 70 in k and 30 given the following information 25 75 16 12 13 8 A: 13.32% B: 12.25% C: 11.88% D: None are correct E: 11.13%
QUESTION 12 Use the table below to answer questions 12 through 15. What is the portfolio tracking error? O A. 81.35 basis points OB. 86.35 basis points O C. 83.35 basis points D. 80.35 basis points Month January February March April May June July August September October November December Portfolio A's Return (%) 2.15 0.89 1.15 -0.47 1.71 0.10 1.04 2.70 0.66 2.15 -1.38 -0.59 Benchmark Index Return (%) 1.65 -0.10 0.52 -0.60 0.65 0.33 2.31 1.10 1.23 2.02 -0.61 -1.20
Problem 5 Assume that you manage a risky portfolio with an expected rate of return of 18% and a standard deviation of 28%. The T-bill rate (risk-free rate) is 7%. Your client chooses to invest 70% in the risky portfolio in your fund and 30% in a T-bill money market fund. We assume that investors use mean-variance utility: U = E(r) – 0.5 x Aa?, where E(r) is the expected return, A is the risk aversion coefficient and o? is the variance of returns. a) What is the expected value and standard deviation of the rate of return on your client's portfolio? b) What is the reward-to-volatility ratio (Sharpe ratio) of your risky portfolio? What is the reward-to-volatility ratio (Sharpe ratio) of your client's risky portfolio? Comment on the relationship between these two Sharpe ratio calculated and explain the intuition behind. c) Draw the Capital Allocation Line (CAL) of your portfolio on an expected return- standard deviation diagram. What is the slope of the CAL? Show the position of your…
INV2 P1 3 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. Does portfolio P have a positive or negative alpha relative to its required return given its level of risk?
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Consider the following information: State of Probability of State of Economy .60 40 Economy Boom Bust Rate of Return If State Occurs Stock A .15 .18 Stock B .23 .08 Stock C .42 -.09 What is the expected return of a portfolio equally invested in stocks A, B, and C? Round to the nearest XX.XX%

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