required rates of return for the three securities?6-23. (Portfolio beta and security market line) You own a portfolio consisting of the ☑stocks below:PERCENTAGE OFSTOCK OR SECURITYPORTFOLIOBETAEXPECTED RETURN120%1.0012%230%0.858%315%1.2012%25%0.607%510%1.6016%The risk-free rate is 3 percent. Also, the expected return on the market portfolio is11 percent.a. Calculate the expected return of your portfolio. (Hint: The expected returnof a portfolio equals the weighted average of the individual stocks' expectedreturns, where the weights are the percentage invested in each stock.)b. Calculate the portfolio beta.c. Given the foregoing information, plot the security market line on paper. Plotthe stocks from your portfolio on your graph.d. From your plot in part (c), which stocks appear to be your winners and whichones appear to be your losers?e. Why should you consider your conclusion in part (d) to be less than certain?6-24. (Portfolio beta) Assume you have the following portfolio.STOCKSTOCK WEIGHTBETAApple38%1.50Green Mountain Coffee15%1.44Disney27%1.15Target20%1.20What is the portfolio's beta?MyLab

Question 6-23Given Data:Stock/SecurityPercentage of Portfolio (wi)Beta (βi)Expected Return…

Answered: required rates of return for the three…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 20P

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Consider a portfolio consisting of the below securities with the below characteristics: Security Amount Invested($) Beta Expected Return A 1,5 MIL 1.0 12.0%B 1.0 MIL 1.5 13.5%C 2.0 MIL 0.8 9.0% Required:a) Calculate the portfolio’s Beta. b) Calculate the portfolio’s expected return. c) Discuss the Capital Asset Pricing Model (CAPM) explaining what it is used forand which are its limitations.
Show detailed steps to solve the following question. Consider a portfolio comprised of three securities in the following proportions and with the indicated security beta. a.) What is the portfolios beta? b.) Wht is the portfolios expected return?
You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset: Portfolio Y Z Market Risk-free Rp 13.5% бр 35.00% 12.5 30.00 7.1 20.00 10.6 4.4 25.00 0 Вр 1.55 1.20 0.80 1.00 0 Assume that the correlation of returns on Portfolio Y to returns on the market is 0.70. What percentage of Portfolio Y's return is driven by the market? Note: Enter your answer as a decimal not a percentage. Round your answer to 4 decimal places. × Answer is complete but not entirely correct. R-squared 0.9785
Consider the following data for two risk factors (1 and 2) and two securities (J and L):λ0 = 0.07 λ1 = 0.04 λ2 = 0.06bJ1 = 0.10 bJ2 = 1.60 bL1 = 1.80 bL2 = 2.45a. Compute the expected returns for both securities. b. Suppose that Security J is currently priced at $50 while the price of Security L is $15.00.Further, it is expected that both securities will pay a dividend of $0.95 during the coming year.What is the expected price of each security one year from now? c. Compute the correlation between stock A and stock B considering the following data.Standard deviation of stock A = 10 percentStandard deviation of stock B = 17 percentCovariance between the two stocks = 90.
You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset: Portfolio X Y Z Market Risk-free Rp 14.0% 13.0 .8.5 12.0 7.2 Ор 39.00% 34.00 24.00 29.00 0 Bp 1.50 1.15 0.90 1.00 0 Assume that the correlation of returns on Portfolio Y to returns on the market is 0.90. What percentage of Portfolio Y's return is driven by the market? Note: Enter your answer as a decimal not a percentage. Round your answer to 4 decimal places. R-squared
8. Assume the risk-free rate is 6.7% and the expected return on the market portfolio is 7.8%. Use the capital asset pricing model (CAPM) to find the required return for each of the securities in the table here, 7. Review On Click the icon to see the Worked Solution. The required return for investment A is %. (Round to one decimal place.) The required return for investment B is %. (Round to one decimal place.) The required return for investment C is %. (Round to one decimal place.) The required return for investment D is %. (Round to one decimal place.) The required return for investment E is %. (Round to one decimal place.) 7: Data Table (Click on the icon here in order to copy its contents of the data table below into a spreadsheet.) Security Beta A 1.34 в 0.93 0.13 0.96 E 0.67
If the simple CAPM is valid and all portfolios are priced correctly, which of the situations below is possible? Consider each situation independently, and assume the risk-free rate is 5%. A) Expected Portfolio Return. 18% 18% A Market (8) Expected Standard Portfolio Return Deviation 219 168 A Market C) Expected Portfolio Return 218 168 A Market D) Portfolio A Market Beta 1.1 1.0 Expected Return 27.14 18% 118 198 Beta 1.1 1.0 Beta 1.7 1.0
Please solve ii
Suppose you observe the following situation on two securities:Security Beta Expected Return Pete Corp. 0.8 0.12 Repete Corp. 1.1 0.16 Assume these two securities are correctly priced. Based on the CAPM, what is the return on the market?
For the upcoming year, the risk-free rate is 2 percent, and the expected return to the market is 7 percent. You are also given the following covariance matrix for Securities J,K, andL. \table[[Covariance,Security J,Security K,Security L],[Security J,0.0012532,0.0010344,0.0019711],[Security K,0.0010344,0.0023717,0.0013558],[Security L,0.0019711,0.0013558,0.0048442]] Also assume that you form a portfolio by putting 0 percent of your funds in Security J, 40 percent of your funds in Security K, and 60 percent of your funds in Security L. Based on this information, determine the standard deviation of the resulting portfolio. ◻ 6.47% 5.27% 4.98% 5.82% 4.77%
You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset: Portfolio X Y Z Market Risk-free Rp 11.0% ор 33.00% 10.0 28.00 8.1 10.4 5.2 18.00 23.00 Ө вр 1.45 1.20 0.75 1.00 Ө Assume that the correlation of returns on Portfolio Y to returns on the market is 0.66. What percentage of Portfolio Y's return is driven by the market? Note: Enter your answer as a decimal not a percentage. Round your answer to 4 decimal places. R-squared
Consider an investment portfolio that consists of three different stocks, with the amount invested in each asset shownbelow. Assume the risk-free rate is 2.5% and the market risk premium is 6%. Use this information to answer thefollowing questions.Stock Weights BetasChesapeake Energy 25% 0.8Sodastream 50% 1.3Pentair 25% 1.0a) Compute the expected return for each stock using the CAPM and assuming that the stocks are all fairly priced.b) Compute the portfolio beta and the expected return on the portfolio.c) Now assume that the portfolio only includes 50% invested in Pentair and 50% invested in Sodastream (i.e., a twoassetportfolio). The yearly-return standard deviation of Pentair is 48% and the yearly-return standard deviation ofSodastream is 60%. The correlation coefficent between Pentair’s returns and Sodastream’s returns is 0.3 What is theexpected yearly-return standard deviation for this portfolio?

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