Please correct answer and don't used hand raiting Stock A's expected return for next year is 8% with a standard deviation of 25%. Stock B'sexpected return is 12% with a standard deviation of 35%. The risk-free rate is 4%. Thecorrelation coefficient between the two stocks' returns is 0.37. You have 60% of your money instock A and the rest in stock B. What's the standard deviation of portfolio returns?

Step 1: List the given values. We have two stocks, A and B, with the following information: Stock…

Answered: Stock A's expected return for next year…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 14P

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You have observed the following returns over time: Assume that the risk-free rate is 6% and the market risk premium is 5%. a. What are the betas of Stocks X and Y? b. What are the required rates of return on Stocks X and Y? c. What is the required rate of return on a portfolio consisting of 80% of Stock X and 20% of Stock Y?
1.Consider a portfolio of two stocks, A and B. The expected return on Stock A next year is 22% with a standard deviation of 14%. The expected return on Stock B next year is 8% with a standard deviation of 6%. The correlation between the two stocks is 0.3. If 70% of the portfolio is in Stock A and 30% in Stock B, what is the standard deviation of the portfolio?
Stock X has a standard deviation of return of 10%. Stock Y has a standard deviation of 20%. The correlation coefficient between the stocks is 0.5. If you invest 60% of your funds in stock X and 40% in stock Y. What is the standard deviation of your portfolio? (please state the formula and show your workings)
Consider two types of assets: market portfolio (M) and stock A. The expected return is 8% and standard deviation of the market portfolio is 15%. The risk-free rate is 2%. The standard deviation of market portfolio returns is 15%. The standard deviation of stock A is 30%, and the beta coefficient is 1. Draw the capital market line and show the position of stock A.
Using the data in the following table, consider a portfolio that maintains a 60% weight on stock A and a 40% weight on stock B. a. What is the return each year of this portfolio? b. Based on your results from part (a), compute the average return and volatility of the portfolio. c. Show that (i) the average return of the portfolio is equal to the (weighted) average of the average returns of the two stocks, and (ii) the volatility of the portfolio equals the same result as from the calculation in Eq. 11.9. d. Explain why the portfolio has a lower volatility than the average volatility of the two stocks. a. What is the return each year of this portfolio? Enter the return of this portfolio for each year in the table below: (Round to two decimal places.) Year 2012 Portfolio % 2010 % 2011 % b. Based on your results from part (a), compute the average return and volatility of the portfolio. The average return of the portfolio is%. (Round to two decimal places.) 2013 % 2014 % 2015 % The…
Consider the following probability distribution for stocks C and D: State Probability Return on Stock C Return on Stock D 1 0.30 7 % − 9 % 2 0.50 11 % 14 % 3 0.20 − 16 % 26 % If you invest 25% of your money in C and 75% in D, what would be your portfolio's expected rate of return and standard deviation?
Assume that the CAPM holds. Stock ABC has the expected return of ABC = volatility of σABC = 28%. It has a market beta of BABC The expected return on the market portfolio is TM σM = 30%. = = 0.6. 7.4% per year and return 12%, and the return volatility of the market portfolio is The annual risk-free rate is rf = 5%. Compute the CAPM alpha of ABC. % Compute the volatility of the idiosyncratic component of return of ABC. %
Suppose the risk-free return is 4.2% and the market portfolio has an expected return of 11.4% and a standard deviation of 16%. Johnson & Johnson Corporation stock has a beta of 0.30. What is its expected return? The expected return is %. (Round to two decimal places.)
You create a portfolio that invests 60% in stock A with E(rA) = 15%, σA = 10% and 40% in stock B with E(rB) = 10%, σB = 4%. 1. Estimate the expected return of the portfolio. 2. Estimate the standard deviation of the portfolio if the two stocks are uncorrelated. 3. Estimate the standard deviation of the portfolio if the two stocks have correlation 0.5. 4. Estimate the standard deviation of the portfolio if the two stocks are perfectly positively correlated.
The expected return for a stock, calculated using the CAP M is 10.5%. The market free return is 9.5% and the beta of the stock is 1.50. Calculate the implied risk-free rate.
Suppose that the risk - free rate of return is 5%, and the expected rate of return on the market portfolio (with a beta of 1) is 14%. In addition, investors forecast a rate of return of 15% for Stock X, and of 17% for Stock Y. The two stocks have a standard deviation and beta as indicated in the Table below. Stocks Standard Deviation Beta X 36 % 0.8 Y 25 % 1.5 a. Calculate the fair expected rate of return and the alpha for each stock.
1.Suppose Stock A has an expected return of 15%, a standard deviation of 20%, and a Beta of 0.4 while Stock B has an expected return of 25%, a standard deviation of 30% and a beta of 1.25, and the correlation between the two stocks is 0.25. What is the standard deviation for a portfolio with 80% invested in Stock A and 20% invested in Stock B?

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