The expected return of the portfolio when there is a 65% chance for the Boom scenario and a 35% chance for the Bust scenario, and the portfolio is invested 35% in stock G and 65% in stock H, is closest to:**Table: Expected Returns for Stocks G and H**| Scenario | Stock G | Stock H ||----------|---------|---------|| Boom | 14.15% | 1.20% || Bust | -3.70% | 9.65% |This table outlines the expected returns for two different stocks, G and H, under two economic scenarios, "Boom" and "Bust." - **Stock G** shows a 14.15% return during the Boom and a -3.70% return during the Bust.- **Stock H** shows a 1.20% return during the Boom and a 9.65% return during the Bust.The objective is to calculate the expected return based on the weighted investment in both stocks and the probability of each economic scenario.

Portfolio refers to a combination or collection of financial instruments or securities being stocks,…

Answered: The expected return of the portfolio…

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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What is the standard deviation for a portfolio invested 50% in A, 50% in B? Probability 0.5 0.25 0.25 Return A (weight =50%) 10% 0% 20% Return B (weight =50%) 25% -10% 0%
Consider the following information about three stocks: Probability 0.22 State of Economy Boom Normal Bust 0.53 0.25 Stock A 0.24 0.00 0.17 -0.28 Stock B 0.36 0.13 -0.45 Stock C 0.55 0.09 Instructions: a) If your portfolio is invested 40% each in A and B and 20% in C, what is the portfolio expected return? The variance? The standard deviation? b) If the expected T-bill rate is 3.80%, the expected inflation rate is 3.50% what are the approximate and exact expected real returns on the portfolio? what is the approximate real risk premium? Show your steps.
1. Suppose your expectations regarding the stock market are as follows: State of the Probability HPR Economy Boom 0.3 33% Normal growth 0.3 19 Recession 0.4 -15 a. What is the expected return, variance and standard deviation? 2. Assume that you manage a risky portfolio with an expected rate of return of 13% and a standard deviation of 29%. The T-bill rate is 5%. Your client chooses to invest 75% of a portfolio in your fund and 25% in a T-bill money market fund. a. What is the expected return and standard deviation of your client's portfolio? b. What is the reward-to-volatility ratio (S) of your risky portfolio and your client's overall portfolio? Explain the sharp ratio.
4. Consider the following information. Your portfolio is invested 30 percent each in A and C, and 40 percent in B. What is the expected return and standard deviation of this portfolio? (10 marks) State of Probability of Rate of Return if State Occurs Economy State of Economy Stock A Stock B Stock C Boom 0.15 0.30 0.45 0.33 Good 0.45 0.12 0.10 0.15 Poor 0.35 0.01 -0.15 -0.05 Bust 0.05 -0.06 -0.30 -0.09
Based on this image, how many stocks does it take to eliminate most of the diversifiable risk?
Consider a portfolio consisting of the following three stocks Portfolio Weight Volatility Correlation with Market Portfolio HEC Corp 0.25 12% 0.4 Green Midget 0.35 25% 0.6 Alive and Well 0.4 13% 0.5 The volatility of the market portfolio is 10% and it has an expected return of 8%. The risk-free rate is 3%. The expected return of the portfolio is closest to: 7.53% 10.50 6.25% 5.4%
What are the expected returns for stock A and stock B? State Probability Return on A Return on B Boom .60 0.35 0.10 Bust .40 0.05 0.25 a. 15.50%, 10.83% b. 26.00%, 14.50% c. 23.00%, 16.00% d. 21.50%, 16.75%
if you were to invest 40% in A and 60% in B, what would be the expected return of your portfolio? Enter return in decimal form, rounded to 4th digit, as in "0.1234"
5. The following data is given about stocks A, B, and C. You have a portfolio with an expected return of 15%. What is the standard deviation of the portfolio if 30% of the total investment is in Stock E? Retum and Risk Retum Correlations A. E[r] 25% Stock 50% 1.00 0.40 0.20 A B. 15% 40% 0.40 1.00 -0.50 5% 30% -0.20 -0.50 1.00

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The expected return of the portfolio when is there is a 65% chance for the Boom scenario and a 35% chance for the Bust scenario and the portfolio is invested 35% in stock G and 65% in stock H is closest to: Stock G Stock H Boom Bust 14.15% 1.20% -3.70% 9.65%