**Problem 8.13 (CAPM, Portfolio Risk, and Return)**Consider the following information for stocks A, B, and C. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.)| **Stock** | **Expected Return** | **Standard Deviation** | **Beta** ||-----------|---------------------|------------------------|----------|| A | 6.25% | 15% | 0.7 || B | 7.50% | 15% | 1.2 || C | 8.50% | 15% | 1.6 |Fund P has one-third of its funds invested in each of the three stocks. The risk-free rate is 4.5%, and the market is in equilibrium. (That is, required returns equal expected returns).a) What is the market risk premium ($ r_M - r_{RF} $)?b) What is the beta of Fund P?c) What is the required return of Fund P?

a.A mixture of different kinds of funds and securities for the investment is termed as the…

Problem 8.13 (CAPM, Portfolio Risk, and Return) Consider the following information for stucks A, B, and C. The returns on the three stocks positively correlated, but they are not perfectly Correlated. (That is, each of the correlation Coefficients is between 0 and 1.) awe Stock Expected Return Stendation Beta 0.7 A B с 6.25% 1.50 8,50 15% 15 15 112 1.6 Find P has one-third of its funds invested of each of the three stocks. The risk-free rate. is 4,5%, and the market is in equilibrium. (That is required returns equal expected returns) (a) What is the market risk premium (VM-YRE)? 5) What is the beta of Fund P? C) What is the required return of Fund P?

Problem 8.13 (CAPM, Portfolio Risk, and Return) Consider the following information for stucks A, B, and C. The returns on the three stocks positively correlated, but they are not perfectly Correlated. (That is, each of the correlation Coefficients is between 0 and 1.) awe Stock Expected Return Stendation Beta 0.7 A B с 6.25% 1.50 8,50 15% 15 15 112 1.6 Find P has one-third of its funds invested of each of the three stocks. The risk-free rate. is 4,5%, and the market is in equilibrium. (That is required returns equal expected returns) (a) What is the market risk premium (VM-YRE)? 5) What is the beta of Fund P? C) What is the required return of Fund P?

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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The beta coefficient A stock’s contribution to the market risk of a well-diversified portfolio is called Q1. ______risk. It can be measured by a metric called the beta coefficient, which calculates the degree to which a stock moves with the movements in the market. Q2. Based on your understanding of the beta coefficient, indicate whether each statement in the following table is true or false: Statement True False Over time, a stock with a beta of 1.0 produces a return that goes up and down with a 1:1 relationship with the return on the market. Beta measures the volatility in stock movements relative to the market. A stock that is more volatile than the market will have a beta of less than 1.0. Q1. Option 1 Unsystematic or Option 2 Relevant. Please provide true or false answers. Thank you!
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The returns on each of the three stocks are positively correlated, but they are not perfectly correlated. Expected Standard Stock Return Deviation Beta Stock A 10% 20% 1.0 Stock B 10 20 1.0 Stock C 12 20 1.4 The risk-free rate is 5%. The required returns equal expected returns. What is the market risk premium? а. 4.0% b. 4.5% C. 5.0% d. 5.5% A stock has an expected return of 12% percent. The beta of the stock is 1.2 and the risk-free rate is 7%. What is the market risk premium? а. 2.50% b. 3.50% С. 4.17% d. 5.33% Calculate the beta of the stock that has a required rate of return of 14%. The risk-free rate of return is 5% and that the market risk premium is 7%. а. 1.25 b. 1.29 С. 1.50 d. 1.83
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We have the following information on Stocks A and B. The risk-free rate is 5%, and the market risk premium is 7.5%. Assume that the market portfolio is correctly priced. Based on the reward-to-risk ratio, are Stocks A and B overpriced, underpriced, or correctly priced? Stock A Stock B Expected return 1196 16.25% Beta 0.8 1.5

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