To achieve a zero standard deviation for a portfolio, calculate the weights of stock A and stock B, assuming the correlation coefficient is-1. Use the following information. (Round intermediate calculations and final answers to 2 decimal places, e.g. 31.21%) State of the economy High growth Moderate growth Recession Weight of stock A Weight of stock B Probability of occurrence 30% 25% 45% Expected return on stock A in this state 38.5% 17.5% -5.5% % % Expected return on stock B in this state 55.5% 25.5% -15.5%

To achieve a zero standard deviation for a portfolio, calculate the weights of stock A and stock B, assuming the correlation coefficient is-1. Use the following information. (Round intermediate calculations and final answers to 2 decimal places, e.g. 31.21%) State of the economy High growth Moderate growth Recession Weight of stock A Weight of stock B Probability of occurrence 30% 25% 45% Expected return on stock A in this state 38.5% 17.5% -5.5% % % Expected return on stock B in this state 55.5% 25.5% -15.5%

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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Historical Returns: Expected and Required Rates of Return You have observed the following returns over time: Assume that the risk-free rate is 5% and the market risk premium is 4%. a. What are the betas of Stocks X and Y? Do not round intermediate calculations. Round your answers to two decimal places. % Year 2017 2018 2019 2020 2021 % Stock X 12% 17 -13 2 22 % Stock Y 15% 7 -4 3 12 Stock X: Stock Y: b. What are the required rates of return on Stocks X and Y? Do not round intermediate calculations. Round your answers to two decimal places. Stock X: Stock Y: c. What is the required rate of return on a portfolio consisting of 80% of Stock X and 20% of Stock Y? Do not round intermediate calculations. Round your answer to two decimal places. Market 13% 12 -10 2 15
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 3.6% + 1.2RM + eA RB = -1.6% + 1.5RM + eB OM = 16%; R-squarea = 0.25; R-square; = 0.15 What is the covariance between each stock and the market index? (Calculate using numbers in decimal form, not percentages. Do not round your intermediate calculations. Round your answers to 3 decimal places.) Covariance Stock A Stock B
Stocks A and B have the following probability distributions of expected future returns: Probability 0.1 (15%) (31%) 0.1 5 0 0.6 15 18 0.1 0.1 22 31 30 49 a. Calculate the expected rate of return, B, for Stock B (A = 13.30%.) Do not round intermediate calculations. Round your answer to two decimal places. % b. Calculate the standard deviation of expected returns, GA, for Stock A (σ = 19.42%.) Do not round intermediate calculations. Round your answer to two decimal places. % Now calculate the coefficient of variation for Stock B. Do not round intermediate calculations. Round your answer to two decimal places. Is it possible that most investors might regard Stock B as being less risky than Stock A? I. If Stock B is less highly correlated with the market than A, then it might have a higher beta than Stock A, and hence be more risky in a portfolio sense. II. If Stock B is more highly correlated with the market than A, then it might have a higher beta than Stock A, and hence be less risky in…
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The figure in the popup window, a. The expected return. b. The standard deviation of the return. Note: Make sure to round all intermediate calculations to at least five decimal places. Graph/chart Probability (%) 35- 30- 25- 20 15- 10- 5 9 -25% shows the one-year return distribution for RCS stock. Calculate -10% 0% Return 10% 25% - Q Q 2 X
Current Attempt in Progress To achieve a zero standard deviation for a portfolio, calculate the weights of stock A and stock B, assuming the correlation coefficient is-1. Use the following information. (Round intermediate calculations and final answers to 2 decimal places, e.g. 31.21%.) State of the economy Probability of Expected return on Expected return on occurrence stock A in this state stock B in this state High growth 30% 41.5% 56.5% Moderate growth 25% 21.5% 26.5% Recession 45% -11.5% -21.5% Weight of stock A % Weight of stock B %
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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.
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
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 %
Using the data in the following table, and the fact that the correlation of A and B is 0.48, calculate the volatility (standard deviation) of a portfolio that is 70% invested in stock A and 30% invested in stock B. (Click on the following icon in order to copy its contents into a spreadsheet.) Year 2008 2009 2010 2011 2012 2013 Realized Returns Stock A - 10% 20% 5% - 5% 2% 9% Stock B 21% 30% 7% - 3% - 8% 25% The standard deviation of the portfolio is %. (Round to two decimal places.)

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