You own a portfolio equally invested in a risk-free asset and two stocks. One of the stocks has a beta of 1.16 and the total portfolio is equally as risky as the market. What must the beta be for the other stock in your portfolio? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Beta

You own a portfolio equally invested in a risk-free asset and two stocks. One of the stocks has a beta of 1.16 and the total portfolio is equally as risky as the market. What must the beta be for the other stock in your portfolio? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Beta

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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Consider the following table, which gives a security analyst's expected return on two stocks in two particular scenarios for the rate of return on the market: Market Return 6% 22 Aggressive Stock -3% 35 Defensive Stock 4% 12 Required: a. What are the betas of the two stocks? b. What is the expected rate of return on each stock if the two scenarios for the market return are equally likely? e. What hurdle rate should be used by the management of the aggressive firm for a project with the risk characteristics of the defensive firm's stock if market return is equally likely to be 6% or 22% ? Also, assume a T-Bill rate of 4%.
Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free rate, rƒ. The characteristics of two of the stocks are as follows: Stock Expected Return Standard Deviation A 8% 55% B 4% 45% Correlation = −1 Required: a. Calculate the expected rate of return on this risk-free portfolio? (Hint: Can a particular stock portfolio be formed to create a “synthetic” risk-free asset?) (Round your answer to 2 decimal places.) b. Could the equilibrium rƒ be greater than rate of return?
If you plot the relationship between portfolio expected return and portfolio beta, what is the slope of the line that results? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) | Slope of the line %
Consider the following table, which gives a security analyst's expected return on two stocks in two particular scenarios for the rate of return on the market: Market Return 6% 22 Aggressive Stock -3% 35 Defensive Stock 4% 12 Required: a. What are the betas of the two stocks? b. What is the expected rate of return on each stock if the two scenarios for the market return are equally likely? e. What hurdle rate should be used by the management of the aggressive firm for a project with the risk characteristics of the defensive firm's stock if market return is equally likely to be 6% or 22% ? Also, assume a T-Bill rate of 4%. Complete this question by entering your answers in the tabs below. Required A Required B Required E What are the betas of the two stocks? Note: Do not round intermediate calculations. Round your answers to 2 decimal places. Aggressive stock Defensive stock Beta
You own a portfolio equally invested in a risk-free asset and two stocks. One of has risky as has a beta of 1.6, and the total portfolios is equally as risky as the market. What's the beta of the second stock?
A stock has a required return of 16%, the risk-free rate is 5.5%, and the market risk premium is 4%. a) What is the stock's beta? b) If the market risk premium increased to 8%, what would happen to the stock's required rate of return? Assume that the risk-free rate and the beta remain unchanged. Do not round intermediate calculations. Round your answer to two decimal places.
Consider the following table, which gives a security analyst’s expected return on two stocks and the market index in two scenarios: Scenario Probability Market Return Aggressive Stock Defensive Stock 1 0.5 6% 2.0% 5.0% 2 0.5 20 32 15 Required: a. What are the betas of the two stocks? (Round your answers to 2 decimal places.) Beta A : Beta D: b. What is the expected rate of return on each stock? (Round your answers to 2 decimal places.) % Rate of Return on A: % Rate of Return on B:
You own a portfolio equally invested in a risk-free asset and two stocks. One of the stocks has a beta of 1.27 and the total portfolio is equally as risky as the market. What must the beta be for the other stock in your portfolio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Beta
You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a beta of 1.23 and the total portfolio is equally as risky as the market, what must the beta be for the other stock in your portfolio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Stock beta
Stock Y has a beta of 0.9 and an expected return of 9.46 percent. Stock Z has a beta of 2.1 and an expected return of 15.59 percent. What would the risk-free rate (in percent) have to be for the two stocks to be correctly priced relative to each other? Answer to two decimals.
You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a beta of 1.25 and an expected return of 15%. The other stock has an expected return of 21%. The total portfolio is equally as risky as the market (i.e.Bp=1). What is the beta for the other stock in your portfolio? What is the expected return of the risk-free asset? What is the expected return of the market? What is the expected return of your portfolio?
Suppose you came up with the following calculations; Assume your utlity function is represented by U E(Rp) 1/2A\sigma_p^2 where your risk aversion parameter A = 25. What is the weight that you must invest in Stock C in order to create your Optimal Portfolio? Present result in decimals, for example, 0.78, not 78 %. Round to 4 decimals. Your Answer: Answer

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