You own a portfolio that has 1,000 shares of stock A, which is priced at $13.43 per share and has an expected return of 16.85 %, and 3,000 shares of stock B,which is priced at $9.10 per share and has an expected return of 7.61%. The risk-free return is 4.72% and inflation is expected to be 2.75%. What is the riskpremium for your portfolio?7.91% (plus or minus 4 bps)7.51% (plus or minus 4 bps)5.94% (plus or minus 4 bps)10.66% (plus or minus 4 bps)None of the above is within 4 bps of the correct answer

Option c: This option is correct. Step 1:We have to calculate the expected return of the portfolio.…

Answered: You own a portfolio that has 1,000…

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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stock in your portfolio? 13. Using CAPM A stock has a beta of 1.14, the expected return on the market is 10.9 percent, and the risk-free rate is 3.6 percent. What must the expected return on this stock be?
Your portfolio consists of 95 shares of CSH and 55 shares of EJH, which you just bought at $21.68 and $31.95 per share, respectively. a. What fraction of your portfolio is invested in CSH? In EJH? b. If CSH increases to $25.93 and EJH decreases to $29.27, what is the return on your portfolio?
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 с Investment Beta $202,000 303,000 505,000 Beta of the portfolio 1.59 Expected rate of return 0.59 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 15 percent and that the risk-free rate is 7 percent. (Round beta answer to 3 decimal places, e.g. 52.750 and expected rate of return answer to 2 decimal places, e.g. 52.75%.) 1.16 %
An investor is forming a portfolio by investing $8,000 in stock A which has a beta of 0.80, and $8,000 in stock B which has a beta of 2.20. The return on the market is equal to 8% and treasure bonds have a yield of 3% (rRF). What’s the portfolio beta? 0.80 1.50 1.90 2.20
Examples Given You own a portfolio of two stocks, A and B. Stock A is valued at $10,500 and has an expected return of 11 percent. Stock B has an expected return of 9 percent. What is the expected return on the portfolio if the portfolio value is $15,500?
I own a portfolio that has $10000 invested in stock X and $15000 invested in stock B. If the expected return on these stocks are 9% and 8% , what is the expected return on the portfolio?
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…
The risk-free rate is 6% and the market risk premium is 5%. Your $1 million portfolio consists of $700,000 invested in a stock that has a beta of 1.2 and $300,000 invested in a stock that has a beta of 0.8. Which of the following statements is CORRECT? A) The portfolio's required return is less than 11%. b)The required return on the market is 10%. C) If the market risk premium remains unchanged but expected inflation increases by 2%, your portfolio's required return will increase by more than 2%. D) If the risk-free rate remains unchanged but the market risk premium increases by 2%, your portfolio's required return will increase by more than 2%. e) If the stock market is efficient, your portfolio's expected return should equal the expected return on the market, which is 11%.
Suppose that you currently have $100,000 invested in a portfolio with an expected return of 13% and a volatility of 8%. The efficient (tangent) portfolio has an expected return of 17% and a volatility of 10%. The risk-free rate of interest is 1%. Suppose that you want to keep the expected return equal to the current rate of 13%. Accordingly, the level of risk you can expect is: 1.00% 3.75% 4.75% 5.15% None of the above
If you have an investment portfolio which is a mix of stock and bonds, with the stocks having a return of 1.2% and the bonds having a return of 3.5% then what is the expected return of the portfolio if it contains 30% stocks.
Assume that you manage a $10.00 million mutual fund that has a beta of 1.05 and a 9.50% required return. The risk-free rate is 2.20%. You now receive another $11.50 million, which you invest in stocks with an average beta of 0.82. What is the required rate of return on the new portfolio? (Hint: You must first find the market risk premium, then find the new portfolio beta.)
You are holding a portfolio with the following investments and betas: Stock Dollar investment Beta А $250,000 1.25 B 200,000 1.70 с 400,000 0.85 D 150,000 -0.25 Total investment $1,000,000 The market's required return is 10% and the risk-free rate is 3%. What is the portfolio's required return? Do not round intermediate calculations. Round your answer to three decimal places. %

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