Rachel is a financial investor who actively Suys and sells in the securities market. Now she has a portfolio of all blue chips, including: $13,500 o. are A, $7,600 of Share B, $14,700 of Share C, and $5,500 of Share D. Required: a) Compute the weights of the assets in Racheľ's portfolio? * b) If Rachel's portfolio has provided her with returns of 9.7%, 12.4%, -5.. and 17.2% over the past four years, respectively. Calculate the geometric average return of the port. "n for this period. c) Assume that expected return of the stock A in Rachel's portfolio is 13.6% this ye. The risk premium on the stocks of the same industry are 4.8%, betas of these stocks is 1.5 and the in. "ion rate was 2.7%. Calculate the risk-free rate of return using Capital Market Asset Pricing Mode. (CAPMI. d) Following is forecast for economic situation and Rachel's portfolio returns next year, calculate the expected return, variance and standard deviation of the portfolio. ** State of economy Mild Recession Growth Strong Growth Probability Rate of returns 0.35 - 5% 0.45 15% 0.20 30%
Rachel is a financial investor who actively Suys and sells in the securities market. Now she has a portfolio of all blue chips, including: $13,500 o. are A, $7,600 of Share B, $14,700 of Share C, and $5,500 of Share D. Required: a) Compute the weights of the assets in Racheľ's portfolio? * b) If Rachel's portfolio has provided her with returns of 9.7%, 12.4%, -5.. and 17.2% over the past four years, respectively. Calculate the geometric average return of the port. "n for this period. c) Assume that expected return of the stock A in Rachel's portfolio is 13.6% this ye. The risk premium on the stocks of the same industry are 4.8%, betas of these stocks is 1.5 and the in. "ion rate was 2.7%. Calculate the risk-free rate of return using Capital Market Asset Pricing Mode. (CAPMI. d) Following is forecast for economic situation and Rachel's portfolio returns next year, calculate the expected return, variance and standard deviation of the portfolio. ** State of economy Mild Recession Growth Strong Growth Probability Rate of returns 0.35 - 5% 0.45 15% 0.20 30%
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
Related questions
Question
Transcribed Image Text:Rachel is a financial investor who actively Suys and sells in the securities market. Now she has a
portfolio of all blue chips, including: $13,500 o. are A, $7,600 of Share B, $14,700 of Share C, and
$5,500 of Share D.
Required:
a) Compute the weights of the assets in Racheľ's portfolio? *
b) If Rachel's portfolio has provided her with returns of 9.7%, 12.4%, -5.. and 17.2% over the past
four years, respectively. Calculate the geometric average return of the port. "n for this period.
c) Assume that expected return of the stock A in Rachel's portfolio is 13.6% this ye. The risk
premium on the stocks of the same industry are 4.8%, betas of these stocks is 1.5 and the in. "ion
rate was 2.7%. Calculate the risk-free rate of return using Capital Market Asset Pricing Mode.
(CAPMI.
d) Following is forecast for economic situation and Rachel's portfolio returns next year, calculate the
expected return, variance and standard deviation of the portfolio. **
State of economy
Mild Recession
Growth
Strong Growth
Probability
Rate of returns
0.35
- 5%
0.45
15%
0.20
30%
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps with 2 images
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education