You have $15,000 invested in one stock (Stock A). The risk-free rate is 0.05.Stock A has an expected return of 0.12 and σ of 0.40. The market portfoliohas an expected return of 0.10 and σ of 0.18. You decide to be a CAPMinvestor. Calculate your dollar investment in the market portfolio such thatyour CAPM portfolio delivers an expected return equal to the expectedreturn of stock A.

Step 1: Gather the InformationWe start with the details provided in the problem:You have $15,000…

Answered: You have $15,000 invested in one stock…

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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You have $95,621 to invest in two stocks and the risk-free security. Stock A has an expected return of 13.32 percent and Stock B has an expected return of 9.77 percent. You want to own $31,048 of Stock B. The risk-free rate is 3.14 percent and the expected return on the market is 10.25 percent. If you want the portfolio to have an expected return equal to that of the market, how much should you invest (in $) in the risk-free security? Answer to two decimals. (Hint: A negative answer is OK - it means you borrowed (rather than lent or invested) at the risk free rate.)
You have been managing a $5 million portfolio that has a beta of 1.15 and a required rate of return of 9.025%. The current risk-free rate is 5%. Assume that you receive another $500,000. If you invest the money in a stock with a beta of 0.95, what will be the required return on your $5.5 million portfolio? Do not round intermediate calculations. Round your answer to two decimal places. ___%
Calculate the Sharpe ratio, Treynor ratio, M-squared and Jensen's alpha for a stock with an expected return of 11%, standard deviation of 16% and a market beta of 1.4. The expected market return is 9%, the standard deviation of the market return is 12% and the risk-free rate is 4%. Would you invest in this stock or not? (Your answer might change depending on your current portfolio allocation).
You invest in a portfolio of 5 stocks with an equal investment in each one. The betas of the 5 stocks are as follows: 0.8, -1.3, 0.95, 1.2, and 1.4. The risk-free return is 3% and the market return is 7%. a. Compute the beta of the portfolio. b. Compute the required return of the portfolio.
You have two assets in your portfolio. Asset X has a beta of 1.7 and Asset Y has a beta of 0.50. The expected return on the market is 13% and the risk free rate is 4%. What would be the reward to risk ratio for Asset X assuming that the market is in equilibrium? A) 11.3% B) 19.3% C) 9.0% D) 8.5% E) 5.8%
The balance sheet for Shankland Corporation follows: 000'009 $ 000006 Current assets Long-term assets (net) Total assets Current liabilities Long-term liabilities Total liabilities Common stock and retained earnings 000 0000 000 00 000 009' 000 006 Total liabilities and stockholders' equity 000'00s Required Compute the following. (Round "Ratios" to 1 decimal place.) Working capital Current ratio Debt-to-assets ratio Debt-to-equity ratio
You have been managing a $5 million portfolio that has a beta of 1.05 and a required rate of return of 6.675%. The current risk-free rate is 3%. Assume that you receive another $500,000. If you invest the money in a stock with a beta of 1.25, what will be the required return on your $5.5 million portfolio? Do not round intermediate calculations. Round your answer to two decimal places.
You have been managing a $5 million portfolio that has a beta of 1.05 and a required rate of return of 10.775%. The current risk-free rate is 5%. Assume that you receive another $500,000. If you invest the money in a stock with a beta of 0.75, what will be the required return on your $5.5 million portfolio? Do not round intermediate calculations. Round your answer to two decimal places.
You are analyzing a stock that has a beta of 1.19. The risk-free rate is 4.4% and you estimate the market risk premium to be 6.6%. If you expect the stock to have a return of 9.8% over the next year, should you buy it? Why or why not? The expected return according to the CAPM is%. (Round to two decimal places.) Should you buy the stock? (Select the best choice below.) O A. Yes, because the expected return based on the beta is equal to or less than the return on the stock. O B. No, because the expected return based on the beta is greater than the return on the stock.
You have $19,878 to invest in a stock portfolio. Your choices are Stock "X" with an expected return of 12.5% and Stock Y with an expected return of 8.24%. If your goal is to create a portfolio with an expected return of 11.92%, how much money will you invest in Stock X? State of Economy Probability of State of Economy Return Stock A Return Stock B Return Stock C Boom 0.20 19.41% 20.65% 29.51% Good 0.35 8.08% 10.59% 13.88% Poor 0.40 5.53% 3.23% 5.04% Bust 0.05 1.77% 1.47% 1.16% Your portfolio is invested 23% each in stock A and C and the remaining in stock B. What is the expected return of the portfolio? NOTE: Enter the PERCENTAGE number rounding to two decimals. If your decimal answer is 0.034576, your answer must be 3.46. DO NOT USE the % sign A Stock has a beta of 1, the expected return on the market is 17.72%, and the risk-free rate is 4.85%. What must the expected return on this stock be? NOTE: Enter the PERCENTAGE number rounding to two…
You are facing three stock investment alternatives, Stock A, Stock B and Stock C. Given the following information, please indicate which stock is (are) overvalued, which stock is (are) undervalued, and which stock is (are) correctly priced based on the required returns calculation using the Capital Asset Pricing Model (CAPM or Security Market Line=SML). The risk free rate is 3% and the risk premium for the market index return is 5%. Please Show Work Expected Stocks Returns BETA A 14% 1.2 B 8% 0.67 C 20% 2.5
An investor is forming a portfolio by investing $50,000 in stock A which has a beta of 2.40, and $50,000 in stock B which has a beta of 0.60. The return on the market is equal to 8% and treasure bonds have a yield of 3% (rRF). What’s the portfolio beta? 0.60 1.30 1.50 1.80 Using the information in Question 41, calculate the required rate of return on the investor’s portfolio 11.0% 15.0% 12.0% 10.5% A retail store is offering a diamond ring for sale for 36 months at $128 per month. The retail price of the ring is $4,000. What is the interest rate on this offer? 9.43% 11.20% 11.98% 12.11%

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