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

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Question 2 You have the following information: A B C Market Alpha 1% 2% 3% 0% Beta 2 1.5 0.5 1 Res. 1.00% 2.00% 0.90% 0.00% Variance Std.Dev 9% 15% 12% 8% Excess 6% Return What is the alpha of the active portfolio? Note: Round to 3 decimals. The margin of error here is +/-0.01. D -2% 2 0.85% 11%
You decide to invest in a portfolio consisting of 26 percent Stock A, 49 percent Stock B, and the remainder in Stock C. Based on the following information, what is the variance of your portfolio? State of Economy Recession Normal Boom Probability of State Economy .116 .669 .215 Multiple Choice Return if State Occurs Stock B -3.70% Stock A -10.30% 9.60% 21.59% 10.70% 25.19% Stock C -12.70% 17.10% 29.89%
INV 2 -1 You are considering an investment in a portfolio P with the following expected returns in three different states of nature: Recession Steady Expansion Probability 0.10 0.55 0.35 Return on P -15% 20% 40% The risk-free rate is currently 4%, and the market portfolio M has an expected return of 16% and standard deviation of 20%, and its correlation with P is .7. Is P an efficient portfolio relative to the market?
Security Returns if State Occurs State of Economy Bust Boom Probability of State of Economy Roll Ross .60 40 -15% 19% 26 6 Calculate the expected return on a portfolio of 70 percent Roll and 30 percent Ross by filling in the following table: (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) State of Economy Probability of State of Economy Portfolio Return if Product State Occurs Bust .60 % Boom 40 % E(Rp) % % 5.12%
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.
INV 2 -1b You are considering an investment in a portfolio P with the following expected returns in three different states of nature: Recession Steady Expansion Probability 0.10 0.55 0.35 Return on P -15% 20% 40% The risk-free rate is currently 4%, and the market portfolio M has an expected return of 16% and standard deviation of 20%, and its correlation with P is .7. What is the portfolio P’s beta?
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)
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%?
efficient portfolio
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 % %

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