You hold a portfolio consisting of two stocks. Stock Abc has an expected return of 20%and a standard deviation of returns of 25%. Stock Xyz has an expected return of 12%and a standard deviation of returns of 10%. The correlation coefficient between thestock returns of Abc and Xyz is 0.3.Stock Abc comprises 60% of the portfolio, while stock Xyz comprises 40% of theportfolio.a. What is the expected return of your portfolio?b. What is the standard deviation of this portfolio's return?c. How would your answer in part b) change if you added five more stocks (withsimilar standard deviations of returns) to your portfolio? You do not need toprovide an actual number – just answer whether the standard deviation wouldgo up, stay the same, or go down. Please explain your answer for full credit.O FocusMacBook PrO

expected return = 0.6*20% + 0.4*12% = 16.80%

Answered: You hold a portfolio consisting of two…

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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Suppose stock returns have a 2-factor structure. You observe a broad stock market portfolio A which earns on average 7.4% and has beta 0.5 on the first factor and beta 0.7 on the second factor; and another broad stock market portfolio B which earns on average 10.6% and has beta 1.2 on the first factor and beta 0.2 on the second factor. The risk free return is 3%. What do you expect to earn from a portfolio with beta 1 on the first factor and zero on the second factor?
You own a portfolio that has $1,800 invested in Stock A and $2,900 invested in Stock B. If the expected returns on these stocks are 9% and 15%, respectively, what is the expected return on the portfolio?
You own a portfolio that has $1,331 invested in Stock A and $2,857 invested in Stock B. If the expected returns on these stocks are 0.08 and -0.01, respectively, what is the expected return on the portfolio? Enter the answer with 4 decimals (e.g. 0.1234).
An Equity has a beta of 0.9 and an expected return of 9%. A risk free asset currently earns 2%. What is the expected return on a portfolio that is equally invested in two assets? If a portfolio of the two assets has an expected return of 6%, what is its beta If a portfolio of the two assets has a beta of 1.5, what is its beta If a portfolio of the two assets has a beta of 1.5, what are the portfolio weights? How do you interpret the weights for the two assets in this case? Explain.
You own a portfolio that has $5,758 invested in Stock A and $1,616 invested in Stock B. If the expected returns on these stocks are -0.12 and 0.24, respectively, what is the expected return on the portfolio? Enter the answer with 4 decimals (e.g. 0.1234).
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.
9. A portfolio is composed of two stocks, Stock A and B. The standard deviation of return for Stock A is 50% and for Stock B it is 40%. If the covariance between the returns for Stock A and Stock B is -0.04, compute the correlation coefficient between the returns for Stock A and Stock B.
(Portfolio beta and security market line) You own a portfolio consisting of the following stocks: The risk-free rate is 8 percent. Also, the expected return on the market portfolio is 18 percent. a. Calculate the expected return of your portfolio. (Hint: The expected return of a portfolio equals the weighted average of the individual stock's expected return, where the weights are the percentage invested in each stock.) b. Calculate the portfolio beta. c. Given the preceding information, plot the security market line on paper. Plot the stocks from your portfolio on your graph. d. From your plot in part c, which stocks appear to be your winners and which ones appear to be losers? e. Why should you consider your conclusions in part d to be less than certain? a. The expected return of your portfolio is%. (Round to two decimal places.) Data table Stock 1 2 (...)) Percentage of Portfolio 30% 35% 5% 15% 15% Beta 1.05 0.80 1.25 0.62 1.62 3 4 5 (Click on the icon in order to copy its contents…
You own a portfolio that has $2,800 invested in Stock A and $3,900 invested in Stock B. Assume the expected returns on these stocks are 9 percent and 15 percent, respectively. What is the expected return on the portfolio? (
You construct a two-stock portfolio using stock A and stock B. You invest $700 in stock A and $300 in stock B. The return standard deviation of stock A is 15%, that of stock B is 20%, and the return correlation coefficient between stock A and stock B is 0.6. The return standard deviation of your portfolio is _____. 13.57% 14.89% 16.50% 17.50%
You are examining a portfolio consisting of three stocks. Using the data in the table a. Compute the annual returns for a portfolio with 25% invested in North Air, 25% invested in West Air, and 50% invested in Tex Oil. b. What is the lowest annual return for your portfolio in part (a)? How does it compare with the lowest annual return of the individual stocks or portfolios in the table above. a. Compute the annual returns for a portfolio with 25% invested in North Air, 25% invested in West Air, and 50% invested in Tex Oil. The annual return for 2014 will be: (Round to two decimal places.) Year 2014 Year 2016 North Air 21% Year 2018 North Air The annual return for 2015 will be: (Round to two decimal places.) Year 2019 29% 6% Year 2015 The annual return for 2016 will be: (Round to two decimal places.) North Air North Air West Air West Air -6% 8% North Air -1% West Air North Air 21% 8% 6% The annual return for 2017 will be: (Round to two decimal places.) West Air Year 2017 The annual…
Expected return of a portfolio using beta. The beta of four stocks-P, Q, R, and S-are 0.59, 0.89, 1.05, and 1.31, respectively and the beta of portfolio 1 is 0.96, the beta of portfolio 2 is 0.87, and the beta of portfolio 3 is 1.05. What are the expected returns of each of the four individual assets and the three portfolios if the current SML is plotted with an intercept of 4.5% (risk-free rate) and a market premium of 12.0% (slope of the line)? ..... What is the expected return of stock P? % (Round to two decimal places.)

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