The following scenario relates to questions 13-15 Shares A and B have the following characteristics: A B Expected return 10% 12% Standard deviation of returns 15% 17% 13. The expected return on a portfolio containing 40% Share A and 60% Share B is: а. 10.2% b. 10.8% с. 11.2% d. 11.8% 14. The standard deviation of returns for a portfolio comprising 25% Share A and 75% Share B, if the correlation between the returns of Shares A and B is 0.4, is: а. 14.66% b. 13.75% c. 10.26% d. 13.52% 15. Which of the following levels of correlation between Shares A and B would provide the least amount of risk reduction? а. +0.5 b. +0.8 с. 0 d. -1

The following scenario relates to questions 13-15 Shares A and B have the following characteristics: A B Expected return 10% 12% Standard deviation of returns 15% 17% 13. The expected return on a portfolio containing 40% Share A and 60% Share B is: а. 10.2% b. 10.8% с. 11.2% d. 11.8% 14. The standard deviation of returns for a portfolio comprising 25% Share A and 75% Share B, if the correlation between the returns of Shares A and B is 0.4, is: а. 14.66% b. 13.75% c. 10.26% d. 13.52% 15. Which of the following levels of correlation between Shares A and B would provide the least amount of risk reduction? а. +0.5 b. +0.8 с. 0 d. -1

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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Use the following information to calculate the expected return and standard deviation of a portfolio that is 60 percent invested in 3 Doors, Incorporated, and 40 percent invested in Down Company: Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Expected return, E(R) Standard deviation, o Correlation Expected return Standard deviation 3 Doors, Incorporated 16% 46 0.31 2.00% 2.00% Down Company 24% 48
Suppose securities A, B, and C have the following expected return and risk. Stock Expected return Risk A 8% 6% B 7% 9% C 13% 9% What is the coefficient of variation for stock A?
The expected return and standard deviation of a portfolio that is 50 percent invested in 3 Doors, Incorporated, and 50 percent invested in Down Company. are the following: Expected return, E(R) Standard deviation, o 3 Doors, Incorporated 14% 42 Correlation +1 Correlation 0 Correlation-1 What is the standard deviation if the correlation is +1? 0? -1? Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Standard Deviation 33.61 % Down Company 10% 31 %
The following are estimates for two stocks. Firm- Specific Expected Standard Stock Return Beta Deviation A 14% 0.90 30% B 21 1.40 42 The market index has a standard deviation of 20% and the risk-free rate is 7%. Required: a. What are the standard deviations of stocks A and B? b. Suppose that we were to construct a portfolio with proportions: Stock A Stock B T-bills 0.30 0.45 0.25 Compute the expected return, beta, nonsystematic standard deviation, and standard deviation of the portfolio.
The expected return and standard deviation of a portfolio that is 60 percent invested in 3 Doors, Incorporated, and 40 percent invested in Down Company are the following: Expected return, E(R) Standard deviation, o 3 Doors, Down Incorporated Company 10% 33 Correlation +1 Correlation 0 Correlation-1 What is the standard deviation if the correlation is +1? 0? -1? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. 11% 44 Standard Deviation % % %
Suppose you are given the following information about 2 stocks, what is the return standard deviation of a portfolio weighted 55% in stock A and 45% in stock B? E(RA)=16% E(RB)=8% σA=22% σB=12% σA,B=−0.003696 Enter rate in decimal form, rounded to 4th digit, as in "0.1234"
10. Share A and share B has the below returns. Rate of return (%) Rate of return (%) Share A Share B 3 5 7 9 10 8 -3 5 (d) Calculate for each share: iii. Mean returns. iv. Standard deviation of returns. (e) You decided to invest 70% in Share A and 30% in Share B. Calculate your portfolio return and the portfolio risk.
11.2. Below are the expected returns from both stocks based on the probability of economic conditions. It is desired to create a portfolio from two stocks. It is decided to invest 30% in stock A and 70% in stock B. Stock A State (i) p(i) E(R) Recession 0.50 -40% Neutral 0.40 15% Boom 0.10 30% 1.00 Stock B State (i) p(i) E(R) Recession 0.5 40% Neutral 0.40 15% Вoom 0.1 -20% 1.00 d- Find the expected return and standard deviation of this portfolio? e- If you were a portfolio manager, what type of investors do you recommend this portfolio and why? f- Explain why the beta of the market is always equal to 1 and beta of a treasury bill equal to 0.
1. A stock has a beta of 1.15 and an expected return of 14 percent. A risk-free asset Currently earns 4.2 percent. a . What is expected return on a portfolio that is equally in inverted assets? b. if portfolio of the two assets has beta of 75, what are the portfolio weights? C. if a portfolio of the two assets has an expected return of 8 percent .what is its beta? the two
Consider the following stock return scenarios for three stocks: Stock Stock A B Economy Up Average Down 8% 5% 0% 2% 3% 4% Stock с 12% 0% -5% If each state of the economy is equally likely, calculate the expected return and population standard deviation for a portfolio invested entirely in Stock A. Which stock should be added to the portfolio to reduce risk?
Based on the following information for Stock A and Stock B, which stock would you add to a market index portfolio that is well diversified? Assume the risk- free rate is 5% and the market risk premium is 10%. Stocks E(r) Standard Deviation Beta 15% 1.5 12% 0.6 A B 20% 25% a. Stock B b. Both Stock A and Stock B C. Stock A d. Neither Stock A or Stock B.
Suppose you bought $48,000 worth of stock A and $80,000 worth of stock B. The standard deviation of returns is 59% for stock A and 27% for stock B. The two stocks' returns have a correlation of 0.2. What is the standard deviation of this portfolio's returns? a. 15.2% b. 18.6% c. 23.6% O d. 26.9% O e. 30.4% QUESTION 10

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