Silver Industries' Y shares have an expected return of 15%, a beta coefficient of 0.8 and a standard deviation of expected returns of 31%. The company's Z shares have an expected return of 11.3%, a beta coefficient of 1.5 and a standard deviation of 25%. The risk-free rate is 5% and the market risk premium is 4%. d. Explain which stock might be more attractive to investors. e. Calculate the return on a portfolio that has $9,200 invested in stock "Y" and $3,500 invested in stock "Z". f. Suppose the market risk premium increases to 7%, which stock would have a higher return?
Silver Industries' Y shares have an expected return of 15%, a beta coefficient of 0.8 and a standard deviation of expected returns of 31%. The company's Z shares have an expected return of 11.3%, a beta coefficient of 1.5 and a standard deviation of 25%. The risk-free rate is 5% and the market risk premium is 4%. d. Explain which stock might be more attractive to investors. e. Calculate the return on a portfolio that has $9,200 invested in stock "Y" and $3,500 invested in stock "Z". f. Suppose the market risk premium increases to 7%, which stock would have a higher return?
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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Silver Industries' Y shares have an expected return of 15%, a beta coefficient of 0.8 and a standard deviation of expected returns of 31%. The company's Z shares have an expected return of 11.3%, a beta coefficient of 1.5 and a standard deviation of 25%. The risk-free rate is 5% and the market risk premium is 4%.
d. Explain which stock might be more attractive to investors.
e. Calculate the return on a portfolio that has $9,200 invested in stock "Y" and $3,500 invested in stock "Z".
f. Suppose the market risk premium increases to 7%, which stock would have a higher return?
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