State of Economy Bust Boom Probability of State of Economy 0.30 0.70 Bust Security Returns if State Occurs Roll -17% 17% Calculate the expected return on a portfolio of 70 percent Roll and 30 percent Ross by filling in the following table: Note: A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers percent rounded to 2 decimal places. State of Probability Portfolio Return if Economy of State of Economy State Occurs 0.30 Ross 18% 5% % Product %

State of Economy Bust Boom Probability of State of Economy 0.30 0.70 Bust Security Returns if State Occurs Roll -17% 17% Calculate the expected return on a portfolio of 70 percent Roll and 30 percent Ross by filling in the following table: Note: A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers percent rounded to 2 decimal places. State of Probability Portfolio Return if Economy of State of Economy State Occurs 0.30 Ross 18% 5% % Product %

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

See similar textbooks

Similar questions

5 Consider the following information: Probability of State of State of Economy Boom Good Poor Bust Economy 15 .45 .35 .05 a. Rate of Return if State Occurs a. Expected return b-1. Variance b-2. Standard deviation Stock A Stock B Stock C .36 46 .26 .21 .17 10 -.03 -.17 Your portfolio is invested 22 percent each in A and C, and 56 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.) % -.06 -.21 % -.04 -.07
Investment Standard Assets Expected return Correlation Beta weight Deviation Asset A 15.00% 30.00% 45.00% Corr A.B = 0.60 1.21 Asset B 45.00% 24.00% 20.00% Corr A.C = -0.45 1.17 Asset C 40.00% 16.00% 15.00% Corr B.C = 0.24 0.65 Questions 1. Calculate expected return of portfolio with all 3 risky assets 2. Calculate Standard deviation of portfolio with all 3 risky assets 3. Assume you sell out Asset A, and replace it with T-Bill, using the same investment weight. Calculate expected return of portfolio of T-Bill and 2 risky assets (Asset B, and C) Answers % % % 4. Assume you sell out Asset A, and replace it with T-Bill, using the same investment weight. Calculate standard deviation of portfolio of T-Bill and 2 risky assets (Asset B, and C) % 5. Calculate beta of portfolio with all 3 risky assets (round to 2 digits after decimal). 6. Use CAPM, calculate required rate of return of all 3 risky assets. 7. Use CAPM, assume you add a new asset, Asset D, into portfolio. You adjust your…
Suppose there are only three assets (A, B, and C) in a market. Given the following information: Asset Market Expected Standard Correlation Beta with market Value Return Deviation portfolio A $1,000,000 (i) 50% 0.3 2.9 В $2,000,000 8% 15% (iv) 1.05 $2,000,000 3% 0% (v) Market $5,000,000 15% (ii) 1 (iii) Fill in the missing values in the table.
Portfolio Expected return Standard deviation Q 7.8% 10.5% R 10.0% 14.0% S 4.6% 5.0% T 11.7% 18.5% U 6.2% 7.5% (Q1) For each portfolio, calculate the risk premium per unit of risk (Sharpe ratio) that you expect to receive. Assume that the risk-free rate is 3.0%. (Q2) Using answers from Q1, which of these five portfolios is most likely to be the market portfolio and explain why. (200 words maximum)
Based on the given annual returns, calculate the VAR for portfolios A and B to determine which is optimal. Additionally, assume that anything more than a 5% loss is unacceptable. Porfolio A Porfolio B Market T-bills A B Market RF 0.11 0.09 0.14 0.02 -0.04 -0.07 -0.06 0.03 0.13 0.11 0.10 0.03 0.07 0.09 0.05 0.04 0.19 0.16 0.18 0.03 0.09 0.07 0.10 0.03
Could part 2 be answered
Consider the following scenario analysis: Scenario Recession Normal economy Boom Assume a portfolio with weights of 0.60 in stocks and 0.40 in bonds. a. What is the rate of return on the portfolio in each scenario? b. What are the expected rate of return and standard deviation of the portfolio? Required A Probability 0.3 0.6 0.1 Required B Recession Normal economy Boom Rate of Return Complete this question by entering your answers in the tabs below. Stocks -5% 13 24 Rate of Return % % 15.6 % Bonds 12% 9 3 What is the rate of return on the portfolio in each scenario? Note: Enter your answer as a percent rounded to 1 decimal place.
Portfolio Expected return Standard deviation Q 7.8% 10.5% R 10.0% 14.0% S 4.6% 5.0% T 11.7% 18.5% U 6.2% 7.5% Q) If you are only willing to make an investment with a standard deviation of 7.0%, is it possible for you to earn a return of 7.0%?
Sample Problem: Investment Market Rate 12% 10% ? 15% A B с D Beta 1.5 (.5) 1.0 ? CAPM ? ? 10% 12% If risk free rate is at 2%, supply the missing values of the summarized table for the portfolio of investment.
Consider the following scenario analysis: Scenario Recession Normal economy Boom Required A Probability 0.3 0.4 0.3 Assume a portfolio with weights of 0.60 in stocks and 0.40 in bonds. a. What is the rate of return on the portfolio in each scenario? b. What are the expected rate of return and standard deviation of the portfolio? Rate of Return Stocks Bonds 12% 7 3 Complete this question by entering your answers in the tabs below. Required B Expected return Standard deviation -4% 13 22 What are the expected rate of return and standard deviation of the portfolio? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places % %
None
Portfolio Expected return Standard deviation Q 7.8% 10.5% R 10.0% 14.0% S 4.6% 5.0% T 11.7% 18.5% U 6.2% 7.5% What is the minimum level of risk that would be necessary for an investment to earn 7.0%? What is the composition of the portfolio along the Capital Market Line (CML) that will generate that expected return? Rf= 3%

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

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

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

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

SEE MORE TEXTBOOKS