(Related to Checkpoint 8.1) (Computing the portfolio expected rate of return Penny Francis inherited a $200,000 portfolio of investments from her grandparents when she turned 21 years of age. The portfolio is comprised of Treasury bills and stock in Ford (F) and Harley Davidson (HOG): a. Based on the current portfolio composition and the expected rates of return, what is the expected rate of return for Penny's portfolio? b. If Penny wants to increase her expected portfolio rate of return, she can increase the allocated weight of the portfolio she has invested in stock (Ford and Harley Davidson) and decrease her holdings of Treasury bills. If Penny moves all her money out of Treasury bills and splits it evenly between the two stocks, what will be her expected rate of return? c. If Penny does move money out of Treasury bills and into the two stocks, she will reap a higher expected a. Based on the current portfolio composition and the given expected rates of return, the expected rate of return for Penny's portfolio is%. (Round to two decimal places.)

(Related to Checkpoint 8.1) (Computing the portfolio expected rate of return Penny Francis inherited a $200,000 portfolio of investments from her grandparents when she turned 21 years of age. The portfolio is comprised of Treasury bills and stock in Ford (F) and Harley Davidson (HOG): a. Based on the current portfolio composition and the expected rates of return, what is the expected rate of return for Penny's portfolio? b. If Penny wants to increase her expected portfolio rate of return, she can increase the allocated weight of the portfolio she has invested in stock (Ford and Harley Davidson) and decrease her holdings of Treasury bills. If Penny moves all her money out of Treasury bills and splits it evenly between the two stocks, what will be her expected rate of return? c. If Penny does move money out of Treasury bills and into the two stocks, she will reap a higher expected a. Based on the current portfolio composition and the given expected rates of return, the expected rate of return for Penny's portfolio is%. (Round to two decimal places.)

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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2. Mr. Morgan is planning to invest £20m in one of two following portfolios. Both portfolios consist of four securities from various industries. The correlation between the returns of the individual securities is thought to be close to zero. Portfolio A investments Equity beta Expected return (%) Amount invested (£m) 1 1.6 18 4 2 0.2 5 6 3 0.6 7 7 4 1 10 3 Portfolio B investments Equity beta Expected return (%) Amount invested (£m) 1 1.4 11 3 2 0.8 10 5 3 0 4.5 7 4 0.4 6 5 QUESTION: (a) Mr. Morgan decides to use the capital asset pricing model (CAPM) to compare the portfolios. The current market return is estimated to be 10 per cent and the rate on Treasury bills is 4.5 per cent. Using the information provided, recommend which one should be selected.
Suppose Caroline is choosing how to allocate her portfolio between two asset classes: risk-free government bonds and a risky group of diversified stocks. The following table shows the risk and return associated with different combinations of stocks and bonds. There is a relationship between the risk of Caroline's portfolio and its average annual return.Suppose Caroline currently allocates 75% of her portfolio to a diversified group of stocks and 25% of her portfolio to risk-free bonds; that is, she chooses combination D. She wants to reduce the level of risk associated with her portfolio from a standard deviation of 15 to a standard deviation of 5. In order to do so, she must do which of the following? Check all that apply. Sell some of her stocks and use the proceeds to purchase bondsSell some of her bonds and use the proceeds to purchase stocksPlace the entirety of her portfolio in bondsAccept a lower average annual rate of returnThe table uses the standard deviation of the…
(Portfolio expected rate of return) Barry Swifter is 60 years of age and considering retirement. Barry's retirement portfolio currently is valued at $750,000 and is allocated in Treasury bills, an S&P 500 index fund, and an emerging market fund as follows: a. Based on the current portfolio composition and the expected rates of return given above, what is the expected rate of return for Barry's portfolio? b. Barry is considering a reallocation of his investments to include more Treasury bills and less exposure to emerging markets. If Barry moves all of his money from the emerging market fund and puts it in Treasury bills, what will be the expected rate of return on the resulting portfolio? a. Based on the current portfolio composition and the given expected rates of return, the expected rate of return for Barry's portfolio is%. (Round to two decimal places.)
The Jeffersons want to start investing $600 monthly to achieve their stated short- and long-term objectives. Which of the following monthly investments is most appropriate for them at this time and why? Provide two pros for the investment allocation you selected and one con for each of the investment allocations you did not select. $600 in a Roth IRA account for Jaylen, allocated as $300 in large cap domestic growth stocks, and $300 in an international growth fund $600 in a AAA-rated municipal bond fund $600 in a high yield, long-term bond fund $100 in a money market account, and $500 in a Roth IRA global balanced mutual fund
Penny inherited a $200,000 portfolio of investments from her grandparents when she turned 21. The portfolio is comprised of treasury bills and stock in Ford and Harley Davidson as follows. Based on the current portfolio composition and the expected returns, what is the expected rate of return for Penny's portfolio? a. 7.8% b. 8.7% c. 7.0% d. 8.0% a.. b.. C. d.. Treasury Bills Ford Harley Davidson Expected Return 4.5% 8.0% 12.0% $ A A A $ $ $ Value 80,000.00 60,000.00 60,000.00
Alejandra invested $2,200 in a mutual fund in 2014. Her account has a balance of $3,100 at the end of 2020. Calculate Alejandra's geometric mean return. Question 8 options: 4.65% 5.37% 5.88% Insufficient information is provided
Suppose Megan is choosing how to allocate her portfolio between two asset classes: risk-free government bonds and a risky group of diversified stocks. The following table shows the risk and return associated with different combinations of stocks and bonds. As the risk of Megan's portfolio increases, the average annual return on her portfolio .Suppose Megan currently allocates 25% of her portfolio to a diversified group of stocks and 75% of her portfolio to risk-free bonds; that is, she chooses combination B. She wants to increase the average annual return on her portfolio from 3% to 7%. In order to do so, she must do which of the following? Check all that apply. Sell some of her stocks and place the proceeds in a savings accountAccept more riskSell some of her bonds and use the proceeds to purchase stocksSell some of her stocks and use the proceeds to purchase bondsThe table uses the standard deviation of the portfolio's return as a measure of risk. A normal random variable, such as a…
Suppose Neha is choosing how to allocate her portfolio between two asset classes: risk-free government bonds and a risky group of diversified stocks. The following table shows the risk and return associated with different combinations of stocks and bonds. Combination A B с D E There is a Fraction of Portfolio in Diversified Stocks (Percent) 0 25 50 75 100 Average Annual Return (Percent) 2.50 4.50 6.50 8.50 Place the entirety of her portfolio in bonds 10.50 relationship between the risk of Neha's portfolio and its average annual return. Accept a lower average annual rate of return Sell some of her bonds and use the proceeds to purchase stocks Sell some of her stocks and use the proceeds to purchase bonds Standard Deviation of Portfolio Return (Risk) (Percent) 0 5 10 15 20 Suppose Neha currently allocates 75% of her portfolio to a diversified group of stocks and 25% of her portfolio to risk-free bonds; that is, she chooses combination D. She wants to reduce the level of risk associated…
The following information applies to Problems 22 through 27: Greta has risk aversion of A = 3 when applied to return on wealth over a one-year horizon. She is pondering two portfolios, the S&P 500 and a hedge fund, as well as a number of one-year strategies. (All rates are annual and continu- ously compounded.) The S&P 500 risk premium is estimated at 5% per year, with a standard devia- tion of 20%. The hedge fund risk premium is estimated at 10% with a standard deviation of 35%. The returns on both of these portfolios in any particular year are uncorrelated with its own returns in other years. They are also uncorrelated with the returns of the other portfolio in other years. The hedge fund claims the correlation coefficient between the annual return on the S&P 500 and the hedge fund return in the same year is zero, but Greta is not fully convinced by this claim. 22. Compute the estimated annual risk premiums, standard deviations, and Sharpe ratios for the two portfolios. 23. Assuming…
Your client, Sandra is considering three assets: a bond mutual fund, a cryptocurrency ETF, and US Treasury bills. The annualized T-bill rate is 2%. The information below refers to the two risky assets. Expected return Standard deviation Bond mutual fund Cryptocurrency ETF 3% 10% Correlation coefficient 0 14% 20% (a) What are the proportions of each asset, in Sandra's optimal risky portfolio? (b) Suppose the return for each risky asset follows a normal distribution. What is the 1% value-at-risk for Sandra's optimal risky portfolio? Hint: P(Z<-2.326) = 0.01 where Z~N(0, 1).
Alecia is a financial investor who actively buys and sells in thesecurities market. Now she has a portfolio of all blue chips, including: $13 500of Share A, $7600 of Share B, $14 700 of Share C, and $5 500 of Share D.Required:a) Compute the weights of the assets in Rachel’s portfolio?b) Following is forecast for economic situation and Alecia’s portfolio returnsnext year, calculate the expected return, variance and standard deviationof the portfolio.State of economy Probability Rate of returnsMild Recession 0.35 - 5%Growth 0.45 15%Strong Growth 0.20 30%
Suppose Rosa is choosing how to allocate her portfolio between two asset classes: risk-free government bonds and a risky group of diversified stocks. The following table shows the risk and return associated with different combinations of stocks and bonds. Combination A B C D E Fraction of Portfolio in Diversified Stocks (Percent) 0 25 50 75 100 Average Annual Return (Percent) 2.00 4.50 7.00 9.50 12.00 If Rosa reduces her portfolio's exposure to risk by opting for a smaller share of stocks, she must also accept a Sell some of her bonds and use the proceeds to purchase stocks Accept more risk Standard Deviation of Portfolio Return (Risk) (Percent) 0 5 10 15 20 Suppose Rosa currently allocates 25% of her portfolio to a diversified group of stocks and 75% of her portfolio to risk-free bonds; that is, she chooses combination B. She wants to increase the average annual return on her portfolio from 4.5% to 9.5%. In order to do she must do which of the following? Check all that apply. Sell…

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