What should be the beta of a replacement stock if an investor wishes to achieve a portfolio beta of 1.0 by replacing stock B in the following equally weighted portfolio: stock A = .79 beta; stock B = 1.0 beta; stock C = 1.13 beta?   A. .93 beta   B. 1.08 beta   C. 1.00 beta   D. 1.10 beta

Q: Which one of the following stocks is correctly priced if the risk-free rate of return is 4.1 percent…

A: We will apply the CAPM model here. CAPM stands for Capital Asset Pricing Model.

Q: Consider the following information about two stocks (D and E) and two common risk factors (1 and 2)…

A: Fama-French factor models are financial models used to explain and predict stock returns based on…

Q: What is the beta of a portfolio made up of two risky assets and a risk-free asset? You invest 35% in…

A: Beta: Beta can be defined as the measure of instability of a separate stock relative to the…

Q: what must the beta be for the other stock in your portfolio?

A: The beta of a portfolio helps measure the portfolio's systematic risk. The portfolio beta is…

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: You have a portfolio that is equally invested in Stock F with a beta of .95, Stock G with a beta of…

A: Calculation of beta of the portfolio:- The market beta is always equal to one. Portfolio beta = Beta…

Q: Given the following information, Calculate the (a) expected return and (b) risk (standard deviation)…

A: Stock A's returns:  15% with 20% probability 28% with 15% probability -12% with 15% probability -5%…

Q: Consider the following stocks and pick the best answer.   Stock Standard Deviation Beta A 25%…

A: Expected return refers to the minimum rate of return that is earned by the investors over an…

Q: Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free…

A: The risk-free rate, also known as the risk-free interest rate or risk-free return, refers to the…

Q: Beta and required rate of return A stock has a required return of 11 percent; the risk-free rate is…

A: In the given question we require to compute the beta of stock from below details : Required return =…

Q: You've assembled the following portfolio: Stock Expected return Beta Portfolio weight 1 0.128 1.8…

A: Beta is primarily used to calculate the systematic risk in the capital asset pricing model. The beta…

Q: What is the beta of a stock where the expected rate of return is 14%, the market premium is 7%, and…

A: In the given question we are require to calculate the Beta of a stock: We can calculate the Beta of…

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

A: Solution: As per the security market line following is the Rate of return for stock A and stock B…

Q: Consider the following table, which gives a security analyst's expected return on two stocks in two…

A: Given:Market rateAggressive stock Defensive stock 7%-4%4%23%37%11%Risk-free rate4%

Q: Problem 1: You invest in a portfolio of 5 stocks with an equal investment in each one. The betas of…

A: According to bartleby guidelines , if multiple questons are asked , then st question needs to be…

Q: Using the spreadsheet answer question (c) please

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

Q: Explain how the following parameters are used for analyzing a stock (or portfolio). Include in your…

A: Since you have posted a question with multiple sub-parts, we will solve the first three sub-parts…

Q: You have a portfolio that is equally invested in Stock F with a beta of 1.17, Stock G with a beta of…

A: Expected return means the percentage of profit that investor is expected depending upon the risk…

Q: Calculate the coefficients of variation for the following stocks: Stock Expected return Standard…

A: 1. Calculate the Coefficient of Variation (CV) for Each Stock:The formula for calculating the…

Q: Which one of the following stocks is correctly priced if the risk-free rate of return is 3.0 percent…

A: In this question, we are required to determine the stock which is correctly priced.

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: You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a…

A: Beta of portfolio comprising of risk free asset and two stocks is computed as follows:-Bp = (wr*Br)…

Q: What is a stock's alpha? Group of answer choices The amount you expect to earn on a security…

A: The CAPM is used to determine an asset's expected return based on the risk-free rate, the asset's…

Q: You are given the following information concerning three portfolios, the market portfolio, and the…

A: Correlation coefficient:The correlation coefficient shows the strength of the relationship between…

Q: You are not given the expected return of stock X. The correlation of the returns on the stock X a…

A: Beta of stock shows the risk and volatility related to risk and volatlity related to the overall…

Q: Stock A has a beta of 1.5 and Stock B has a beta of 0.8. Which of the following statements is most…

A: Beta is an important measure of risk used to evaluate stocks. It is a measure of a stock's…

Q: Intro The table below shows the expected rates of return for three stocks and their weight in some…

A: Expected Return of Portfolio is calculated by multiplying the Expected return of each stock by their…

Q: Give me three steps solution and explanation

A: To find the reward-to-risk ratio of Stock B, we first need to understand that the reward-to-risk…

Q: You've gathered the following infomration on stock A and stock B: Beta Volatility Stock 1.5 25% A…

A: Systematic risk is a concept in finance that pertains to the portion of an investment's risk that…

Q: b) Suppose that you observe the following information in Table 2 for stocks A and B: Table 2…

A: Single index model: Ri=αi+βiRm+ei Ri=excess return over risk free rate

Q: Calculate the portfolio beta for the following portfolio: Stock A: $638 invested with a Beta of 1.3…

A: Portfolio refers to basket of different financial assets in which investment is made by single…

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.