The table below shows the expected rates of return for three stocks and their weights in some portfolio: State Recession Normal Boom 4+ decimals Submit Portfolio weights Probability 4+ decimals 0.2 0.5 0.3 Submit Stock A 0.5 Part 1 What is the expected portfolio return? 0.01 0.04 0.09 Stock B 0.2 Expected returns Stock C 0.3 Part 2 What is the standard deviation of the portfolio returns? 0.04 -0.06 0.08 0.01 0.1 0.09

The table below shows the expected rates of return for three stocks and their weights in some portfolio: State Recession Normal Boom 4+ decimals Submit Portfolio weights Probability 4+ decimals 0.2 0.5 0.3 Submit Stock A 0.5 Part 1 What is the expected portfolio return? 0.01 0.04 0.09 Stock B 0.2 Expected returns Stock C 0.3 Part 2 What is the standard deviation of the portfolio returns? 0.04 -0.06 0.08 0.01 0.1 0.09

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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We know the following expected returns for stocks A and B, given the different states of the economy: State(s) Probability E(rA,s) E(rB,s) Recession 0.1-0.06 0.04 Normal 0.5 0.09 0.07 Expansion 0.4 0.17 0.11 What is the standard deviation of returns for stock B?
Stock A and B have the following probability distributions of expected future returns: Probability A B 0.1 (20%) (46%) 0.2 7 0 0.4 15 15 0.2 23 30 0.1 47 50 What is the expected rate of return for Stock A? What is the standard deviation of returns for Stock B?
Vijay
The following expected return and the standard deviation of current returns are known: Security (i) Expected Return Standard Deviation βi A 0.20 0.12 1.1 B 0.12 0.10 0.8 T-Bills 0.05 0 0 Market Portfolio 0.20 0.15 1 Required: Determine which of A or B is over-valued or undervalued.
The expected returns of a portfolio are influenced by several factors that investors should consider whenconstructing and managing their investment portfolios. discussesthe factors that affect expected returns of a portfolio.
Assume CAPM holds. What is the correlation between an efficient portfolio and market portfolio? a. 1 b.-1 c.0 d. Not enough information Assume CAPM holds. The risk-free rate is 1% and the expected return on the portfolio is 5%. What is the expected return of a stock with a beta of 2? 70%
2. Consider the following expected returns, volatilities, and correlations: Expected Standard Stock Return Deviation Correlation with Vital Correlation with Mital Correlation with Pital Vital 14% 6% 1.0 -1.0 0.0 Mital 44% 24% -1.0 1.0 0.7 Pital 23% 14% 0.0 0.7 1.0 a. Imagine a portfolio comprising solely of Vital and Mital. What portion of should be allocated to Vital stock to ensure a risk-free investment? your investment b. What is the portfolio's volatility when holding a $10,000 long position in Pital and a $2000 short position in Mital? wwwww c. In a market, there are two securities, Artis and Brotis. Currently, the price of Artis stands at £50. Looking ahead, the price of Artis next year will be £40 during a recession, £55 in normal economic times, and £60 in an expanding economy. The probabilities associated with recession, normal times, and expansion are 0.1, 0.8, and 0.1, respectively. Artis does not pay dividends and has a correlation of 0.8 with the market. On the other…
A stock's returns have the following distribution: Probability Rate of Return 0.1 -2% 0.2 -10% 0.4 10 % 0.2 20 % 0.1 30% Calculate the stock's a) expected return, b) standard deviation, and c) coefficient of variation.
Suppose you have predicted the following returns for stock C in three possible states of nature. What is the expected return of stock C? State Probability Return Boom 0.3 0.15 Normal 0.5 0.10 Recession 0.2 0.02
Read the information for 3 stocks X, Y and Z below. Rate of return when state occurs (For Stock X, Y, and Z) State of Economy Probability of State Stock X Stock Y Stock Z Boom 0.3 0.4 0.45 0.6 Normal 0.5 0.2 0.15 0.08 Recession 0.2 0 -0.3 -0.4 If your portfolio includes 35 percent of X, 40 percent of Y and 25 percent of Z, answerthe following questions: (a) Calculate the portfolio expected return.(b) Calculate the variance and the standard deviation of the portfolio (c) If the expected T-bill rate is 3.80 percent, calculate the expected risk premiumon the portfolio.
Portfolio theory with three assets Estimated covariances between three stocks are shown in the following table. The expected returns for the three stocks are 11% (A), 9% (B) and 4% (C), respectively A B C A 0.0225 0.0030 -0.0009 B 0.0030 0.0100 -0.0012 -0.0009 -0.0012 0.0036 Note: All returns and covariance matrix are on an annual basis A) Calculate the expected return and standard deviation of the portfolio if it is equally split between A and B B) Calculate the expected return and standard deviation of the portfolio if it is equally split between A,B and C C) Compare the portfolio in answer (a) and the portfolio in answer (b) using the sharpe ratio. Assuming the current annual risk-free rate is 3%
What is the required return for each stock? What is required return for stock B? Scenario Probability Stock A Stock B Market Risk-free rate Bust 0.25 -0.15 -0.05 Normal 0.55 0.2 0.1 Boom 0.2 0.4 0.3 Beta 1.2 0.9 Expected return 0.13 0.05

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