You have just invested in a portfolio of three stocks. The amount of money that you invested in each stock and its beta are summarized below. Stock A B C Investment $198,000 297,000 495,000 Beta 1.45 0.60 1.30 Calculate the beta of the portfolio and use the Capital Asset Pricing Model (CAPM) to compute the expected rate of return for the portfolio. Assume that the expected rate of return on the market is 14 percent and that the risk-free rate is 8 percent. (Round beto answer to 3 decimal places, e.g. 52.750 and expected rate of return answer to 2 decimal places, e.g. 52.75%.) Beta of the portfolio Expected rate of return

You have just invested in a portfolio of three stocks. The amount of money that you invested in each stock and its beta are summarized below. Stock A B C Investment $198,000 297,000 495,000 Beta 1.45 0.60 1.30 Calculate the beta of the portfolio and use the Capital Asset Pricing Model (CAPM) to compute the expected rate of return for the portfolio. Assume that the expected rate of return on the market is 14 percent and that the risk-free rate is 8 percent. (Round beto answer to 3 decimal places, e.g. 52.750 and expected rate of return answer to 2 decimal places, e.g. 52.75%.) Beta of the portfolio Expected rate of return

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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assume that expected return of the stock A in Rachel's portfolio is 13.6% this year.The risk premium on the stock of the same industry are 4.8%.beta of the stock is 1.5 and the inflation rate was 2.7. a)Calculate the risk-free rate of return using capital market asset pricing model please provide the workings for finding risk free rate finding adjusted rate of return(inflation adjusted) finding Risk free rate of return using CAPM model
You want to create a portfolio equally as risky as the market, and you have $5M to invest. Given the information below, what is your investment in the risk-free asset? Asset Stock A Stock B Stock C Risk-free Asset $0.8M $0.7M $0.9M $1.1M Investment $1M $2M Beta 0.7 1.25 1.5
Kelly has investments with the following characteristics in her portfolio: Investment in Beta Amount invested Stock Q 1.5 $80,000 Stock R 2.0 $50,000 Stock S 0.85 $70,000 Given the risk free rate of 2% and the market return of 7%, what is the expected rate of return of Kelly’s investment portfolio?
Suppose the risk-free rate is 6 percent and the market portfolio has an expected return of 12 percent. The market portfolio has a standard deviation of 7 percent. Portfolio Z has a correlation coefficient with the market of 0.35 and standard deviation of 6 percent. According to the capital asset pricing model, what is the expected return on portfolio Z a. 12.6 percent b. 7.8 percent c. 9.87 percent d. 12.05 percent
Karen Kay, a portfolio manager at Collins Asset Management, is using the capital asset pricing model for making recommendations to her clients. Her research department has developed the information shown in the following exhibit. Forecast Returns, Standard Deviations, and Betas Stock X Stock Y Market index Risk-free rate Forecast Return 14.0% 17.0% 14.0% 5.0% Standard Deviation 36% 25% 15% Beta 0.8 1.5 1.0 a. Calculate expected return and alpha for each stock. b. Identify and justify which stock would be more appropriate for an investor who wants to i. Add this stock to a well-diversified equity portfolio. ii. Hold this stock as a single-stock portfolio.
You want your portfolio beta to be .95. Currently, your portfolio consists of $4,000 invested in Stock A with a beta of 1.26 and $7,000 in Stock B with a beta of .94. You have another $8,000 to invest and want to divide it between an asset with a beta of 1.74 and a risk-free asset. How much should you invest in the risk-free asset? Multiple Choice O $3,966 $4,425 $4,902 $4,305 $5,083
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.)
Suppose you are considering investing some of your wealth in one of three investment portfolios: gold, food, or auto. Your broker provides you with the following table, which gives the probabilities of possible returns from each investment: Gold Food Auto Probability Return Probability Return Probability Return 0.2 15% 0.4 15% 0.2 20% 0.3 8.3% 0.6 5% 0.25 12% 0.2 10% 0.25 6% 0.3 5% 0.2 5% 0.1 0.10% Which investment should you choose to maximize your expected return: gold, food, or auto? If you are risk-averse and have to choose between the gold and the food investments, which should you choose? Why? Do I have to use standard deviation? Why?
Fiona constructs an investment portfolio using two common stocks, A and B. a. Suppose the weight attached to A, wA, is 0.5. Using that information, please fill in the blanks in the table below: Probability Return on A 40% 10% Return on B Return on Portfolio P when WA = 0.5 -5% 8% 0.3 0.4 0.3 50% 5% b. Assuming probability and the corresponding return rates of A and B remain the same as those in Question 4.a, please compute the return on portfolio P2 when wa = 0.8 (simply fill in the blanks in the following table): Probability Return on A || Return on B | Return on Portfolio P2 when wa = 0.8 0.3 40% 0.4 10% 0.3 50% c. Assume the risk-free interest rate is 2%. Which portfolio is more attractive? P or P? Please explain.
The expected rates of return for Stocks A, B, and C are.10,.15, and .20 respectively. The risk free rate is .03 and the market risk premium is .08 . If you invest$400,$200, and$200in Stocks A, B, and C respectively, what is the beta of the portfolio? Assume that the three stocks are priced in equilibrium.
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%

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