QUESTION 4Consider the following information on a portfolio of three stocks:State ofProbability ofRate of Return if State OccursEconomyState of EconomyStock AStock BStock CBoom.15.05.21.18NormalBust.80.08.15.07.05.12-.22-.02The portfolio is invested 35 percent in each Stock A and Stock B and 30 percent in Stock C. If the expected T-bill rate is 3.90 percent, what is the expected riskpremium on the portfolio?6.90%10.09%7.72%6.19%8.68%

To calculate the expected risk premium on the portfolio, we need to follow these steps:1. Calculate…

Answered: QUESTION 4 Consider the following…

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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Aa.5
Consider the following information: State of Probability of Economy State of Economy Boom Bust .58 .42 Rate of Return if State Occurs Variance Stock A .07 .16 Stock B 15 .06 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.) Expected return 12.87% % Stock C 33 -.06 b. What is the variance of a portfolio invested 20 percent each in A and B and 60 percent in C? (Do not round intermediate calculations and round your answer to 6 decimal places, e.g., 32.161616.) 1.29% *
es Consider the following information on three stocks: State of Economy Boom Normal Bust Probability of State of Economy .20 .40 .40 Rate of Return If State Occurs Stock A .34 .25 .03 Stock B .46 .23 -.25 Stock C .50 .20 - .42 a-1. If your portfolio is invested 35 percent each in A and B and 30 percent in C, what is the portfolio expected return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a-2. What is the variance? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .32161.) a-3. 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.) b. If the expected T-bill rate is 4.50 percent, what is the expected risk premium on the portfolio? (Do not round intermediate calculations abd enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c-1. If the expected inflation rate…
Vijay
Stock A's stock has a beta of 1.30, and its required return is 13.75%. Stock B's beta is 0.80. If the risk-free rate is 4.75%, what is the required rate of return on B's stock? (Hint: First find the market risk premium.) Select the correct answer. a. 10.26% b. 10.32% c. 10.29% d. 10.35% e. 10.38%
Consider the following information on Stocks I and II: State of Economy Recession Normal Irrational exuberance. Probability of State) of Econony 15 .70 .15 a. Stock I beta Stock Il beta. b. Stock I standard deviation Stock Il standard deviation Rate of Return if State Occurs. Stock I Stock II 05 18 07 The market risk premium is 7 percent, and the risk-free rate is 3.5 percent. a. Calculate the beta of each stock. Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. b. Calculate the standard deviation of each stock. c. More systematic nsk d. More unsystematic risk e. "Riskier stock Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. c. Which stock has the most systematic risk? d. Which one has the most unsystematic risk? e. Which stock is "riskler"? -.21 .10 39 % %
Read the information for 3 stocks X, Y and Z below. Rate of return when state occurs (For Stock X, Y, and Z) State of Economy Probability of State Stock X Stock Y Stock Z Boom 0.3 0.4 0.45 0.6 Normal 0.5 0.2 0.15 0.08 Recession 0.2 0 -0.3 -0.4 If your portfolio includes 35 percent of X, 40 percent of Y and 25 percent of Z, answerthe following questions: (a) Calculate the portfolio expected return.(b) Calculate the variance and the standard deviation of the portfolio (c) If the expected T-bill rate is 3.80 percent, calculate the expected risk premiumon the portfolio.
QUESTION 1 Consider the following information on stocks I and II: State of probability of Rate of Return if state Occurs state of Econ. Stock I Stock II 0.20 0.06 0.55 0.47 0.25 0.23 The market risk premium is 8%, and the risk free rate is 6%. Economy Recession Normal Boom a) Which stock has the most Systematic risk? b) Which one has the most unsystematic risk? c) Which stock is "riskier"? Explain. -0.25 0.11 0.68
Consider the following information: Rate of Return if State Occurs State of Probability of State of Economy Stock A Stock B Stock C Economy Boom 0.15 0.32 0.42 0.33 Good 0.45 0.19 0.13 0.12 Poor 0.30 -0.05 -0.08 -0.06 Bust 0.10 - 0.16 -0.28 0.09 a. Your portfolio is invested 30 percent each in A and C, and 40 percent in B. What is the expected return of the portfolio? (Round your answer to 2 decimal places. (e.g., 32.16)) Expected return % b-1What is the variance of this portfolio? (Do not round intermediate calculations and round your answer to 5 decimal places. (e.g., 32.16161)) Variance b-2What is the standard deviation? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Standard deviation %
Consider the following information: Rate of Return if State Occurs Probability of State State of Economy of Economy Stock A Stock B Stock C Boom .10 34 44 24 Good .60 .19 15 08 Poor .25 -.01 09 -.07 Bust .05 -15 -.19 -11 a. Your portfolio is invested 25 percent each in A and C, and 50 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.) a. Expected return b-1. Variance % b-2. Standard deviation %
5 What is the expected return on a portfolio that is invested 22 percent in Stock A, 36 percent in Stock B, and the remainder in Stock C? State of Economy Probability of State of Economy Rate of Return if State Occurs Stock A Stock B Stock C Boom .05 .18 .11 .13 Normal .92 .09 .08 .06 Bust .03 -.07 -.05 -.14 Print Multiple Choice 7.06% 7.38% 6.99% 7.18% 6.84%
Radhubhai

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