Question 3Suppose you hold a diversified portfolio consisting of a $7,500 investment in each of 20different common stocks. The portfolio beta is equal to 1.12. Now, suppose you have decidedto sell one of the stocks in your portfolio with a beta equal to 1.0 for 7,500 and to use theseproceeds to buy another stocks for your portfolio. Assume the new stock's beta to 1.75.Calculate your portfolio's new beta.

here we can calculate portfolio's new beta by following method

Answered: Question 3 Suppose you hold a…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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You own a stock portfolio Invested 16 percent in Stock Q, 24 percent In Stock R, 36 percent In Stock S, and 24 percent In Stock T. The betas for these four stocks are .94, 1.00, 1.40, and 1.85, respectively. What Is the portfolio beta? Note: Do not round Intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Portfolio beta
Financial mathematics
1. Tanner is choosing between two investment options. He can invest $500 now and get (guaranteed) $550 in one year, or invest $500 now and get (guaranteed) $531.40 back later today. The risk-free rate is 3.5%. Which investment should Tanner prefer? A) $531.40 later today, since $1 today is worth more than $1 in one year. B) $550 in one year, since it is $50 more than he invested rather than $31.40 more than he invested. C) Neither - both investments have a negative NPV. D) Tanner should be indifferent between the two investments, since both are equivalent to the same amount of cash today.
Q4. An individual with the utility function u(x) = x² owns her wealth of $20,000. An expected profit maximizing company (or risk neutral company) facing the individual can make expected profit greater than $ 19,900. True or False? Explain it. If it is true, show
15. If a financial institution has a portfolio that half (50%) consists of bonds with a tenor of five years and the other half is in the form of bonds with a duration of seven years, what is the duration/tenor of the financial institution's portfolio? A) 12 years B) 7 years C) 6 years D) 5 years 16. If the corporation/company begins to experience large losses, the default risk on the company's bonds will be A) increases and the uncertainty of bond returns increases, meaning that the expected return on the company's bonds will decrease. B) increases and the uncertainty of bond returns decreases, which means the expected return on the company's bonds will decrease. C) decreases and the uncertainty of bond returns decreases, which means the expected return of the company's bonds will decrease. D) decreases and the uncertainty of bond returns decreases, which means the expected return of the company's bonds will increase.
Question 11 The beta of an active portfolio is 1.45. The standard deviation of the returns on the market index is 22%. The nonsystematic variance of the active portfolio is 3%. The standard deviation of the returns on the active portfolio is a) 36.30%. b) 5.84%. c) 19.60%. d) 24.17%. e) 26.0%.

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