Suppose that a portfolio of stocks has an expected return E(rS) = 12% and a standard deviation of returns sS = 20%. A portfolio of corporate bonds has an expected return E(rB) = 6% and a standard deviation sB = 9%.   a) What is the expected portfolio return and portfolio standard deviation for an equally weighted combination of the stock and bond portfolio if the correlation between stock and bond portfolio returns, rSB, is -0.5?         b) Suppose you require a portfolio expected return of 15% per year. What weights must you assign to the stock and bond portfolios to achieve this expected return? What is the standard deviation of returns for this combination portfolio if the correlation between stock and bond returns is -0.5?           C) Suppose that the standard deviation of the market (sM) is 15% and the correlation between the stock portfolio and the market is 0.7. What is the beta of the stock portfolio?

Q: a) Share X and Share Y have the following returns with their respective probabilities. Share X Share…

A: Expected return can be found by multiplying the expected returns with the probabilities and then the…

Q: 2. (a) You have a two-asset portfolio that comprises Stock PY and Stock NY with the following…

A: Portfolio standard deviation is the standard deviation of all the different investments in the…

Q: From the following information, calculate covariance between stocks A and B and expected return and…

A: Correlation between A and B = 0.65 Weight of A in portfolio = 50% Weight of B in portfolio = 50%…

Q: c) Assume that using the Security Market Line (SML) the required rate of return (Ra) on stock A is…

A: Since you have asked multiple question, we will solve the first question for you. If you want any…

Q: Suppose that all stocks can be grouped into two mutually exclusive portfolios (with each stock…

A:

Q: 1. What are beta measures? (a) The volatility of the security (b) The joint volatility of any two…

A: Beta helps in measuring the systematic risk of a security or portfolio compared to the market as a…

Q: Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is…

A: Given that;Return on market portfolio is denoted by RM.Required return on stock A is RA and the…

Q: Assume

A: Understanding the Given Data- Volatility of Asset 1: - Volatility of Asset 2: - Correlation between…

Q: different scenarios are as follows: Scenario 1 2 3 4 5 A 0.11 -0.11 0.09 0.25 0.18 B -0.09 0.12 0.15…

A: Investors are risk adverse, and historical statistics show that financial markets price assets to…

Q: Assume the following data for a stock: Risk - free rate market) == 1.5; beta (size) = 0.3; beta…

A: To calculate the expected return on the stock using the Fama-French three-factor model, we need to…

Q: 1. Consider 3 stocks A, B, and C and the risk-free rate RF=0.5%. The logarithmic rates of return are…

A: Hi, since you have posted multiple questions and the first uestion has multiple sub-parts. We will…

Q: Consider the following simplified APT model: Factor Market Expected Risk Premium (%) Interest rate…

A: FactorExpected risk premiumMarket6.20%Interest rate-0.80%Yield spread4.80%MarketInterest rateYield…

Q: n a CAPM world, what do you need to know in order to estimate an asset's expected return? Group of…

A: In CAPM we measure the rate of return of the stock based on the beta of the stock that is related to…

Q: What is the correlation coefficient between returns on any efficient portfolio and returns on the…

A: Efficient portfolio is a type of portfolio which has eliminated all the non-systematic risk in the…

Q: The additional return over the risk-free rate needed to compensate investors for assuming an average…

A: Basis the general principle that higher risk security do have the higher returns, it is known that…

Q: how do I calculate the product of the deviations so that I can get the Covariance number for the…

A: Data given: Probability Stock Fund Rate of Return A B 0.1 -34% 0.2 -20% 0.3 21% 0.4 36%…

Q: 1. Beta is positively related A. the degree of correlation between a stock's return and the market…

A: Risk is a predictable loss or uncertainty that may happen and may not happen. The business owner and…

Q: Consider a portfolo consisting of the following three stocks: E The volatility of the market…

A: Beta is used as a measure of systematic risk in the CAPM model. It provides a direct relation…

Q: The table below contains the covariance matrix of stock returns and the market. Assume that the…

A: Risk is the possibility of loss for an organization and risk management is one of the most important…

Q: Using the spreadsheet answer question (c) please

A: Given,  Volatility of the market = 10% Expected Return = 8% Risk-free rate = 3%

Q: What is the formula for the Sharpe Ratio for a two-asset portfolio of stocks and bonds with equal…

A: Sharpe ratio is used in portfolio management to optimize the portfolio for minimum risk with maximum…

Q: Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is…

A: Capital Asset Pricing Model (CAPM): CAPM is the method of calculating the expected return on…

Q: Assume that using the Security Market Line the required rate of return (RA) on stock A is found to…

A: As per the above consideration The ratio of expected return on A and expected return on B is

Q: 5. Portfolio Beta Portfolio beta can be computed in the same way as portfolio return was computed.…

A: Beta is used in determining the risk premium to be expected from investment made in a asset because…

Q: The table below shows the betas and portfolio weights for 3 stocks:     Portfolio weights Stock…

A: Portfolio:A portfolio is an investment in 2 or more assets to diversify risk. The efficient…

Q: risk premium (RP) expected return on a portfolio,r^P realized rate of return, r¨ diversification…

A: 1) Risk premium is the return you earn over and above the risk-free rate. It is calculated by…

Q: Suppose stock returns have a 2-factor structure. You observe a broad stock market portfolio A which…

A: Portfolio A return (Ra) = 7.4% Portfolio B return (Rb) = 10.6% Beta of first factor for A (A1) = 0.5…

Q: (Expected rate of return and risk) Syntex, Inc. is considering an investment in one of two common…

A: Return refers to the profit or loss generated from an investment over a specific period of time. It…

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.