Your client has $103,000 invested in stock A. She would like to build a two-stock portfolio by investing another $103,000 in either stock B or C. She wants a portfolio with an expect return of at least 14.5% and as low a risk as possible, but the standard deviation must be no more than 40%. What do you advise her to do, and what will be the portfolio expected return and standard deviation? A B C Expected Return 17% 12% 12% Standard Deviation 47% 38% 38% Correlation with A 1.00 0.15 0.32

Your client has $103,000 invested in stock A. She would like to build a two-stock portfolio by investing another $103,000 in either stock B or C. She wants a portfolio with an expect return of at least 14.5% and as low a risk as possible, but the standard deviation must be no more than 40%. What do you advise her to do, and what will be the portfolio expected return and standard deviation? A B C Expected Return 17% 12% 12% Standard Deviation 47% 38% 38% Correlation with A 1.00 0.15 0.32

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 Z is currently priced using an expected return of 16.8%. It has a beta of 1.15, and the risk-free rate is 3%. If the market risk premium is 12%, which of the following is CORRECT? You should invest in this stock because, according to CAPM, it is underpriced You should invest in this stock because, according to CAPM, it is overpriced You should short sell this stock because, according to CAPM, it is overpriced You should not invest in this stock because, according to CAPM, it is correctly priced
You have $138,000 to invest in a portfolio containing Stock X, Stock Y, and a risk - free asset. You must invest all of your money. Your goal is to create a portfolio that has an expected return of 13 percent and that has only 76 percent of the risk of the overall market. If X has an expected return of 31 percent and a beta of 1.8, Y has an expected return of 20 percent and a beta of 1.2, and the risk - free rate is 7 percent, how much money will you invest in Stock Y?
You want to invest $45,000 in a portfolio with a beta of no more than 1.44 and an expected return of 14.3%. Bay Corp. has a beta of 0.83 and an expected return of 10.8%, and City Inc. has a beta of 1.9 and an expected return of 16.98%. The risk-free rate is 6%. You can invest in Bay Corp. and City Inc. How much will you invest in each?
You are very bullish (optimistic) on stock EFG, much more so than the rest of the market. In each question, choose the portfolio strategy that will give you the biggest dollar profit if your bullish forecast turns out to be correct. Explain your answer.a. Choice A: $10,000 invested in calls with X = 50.Choice B: $10,000 invested in EFG stock.b. Choice A: 10 call option contracts (for 100 shares each), with X = 50.Choice B: 1,000 shares of EFG stock.
You have a portfolio with a standard deviation of 30% and an expected return of 18%. You are considering adding one of the two stocks in the following table. If after adding the stock you will have 20% of your money in the new stock and 80% of your money in your existing portfolio, which one should you add? Stock A Stock B Expected Return 15% 15% Standard Deviation 25% 20% Correlation with Your Portfolio's Returns XXX 0.2 0.6 Standard deviation of the portfolio with stock A is 25.48%. (Round to two decimal places.) Standard deviation of the portfolio with stock B is 26.59 %. (Round to two decimal places.) Which stock should you add and why? (Select the best choice below.) A. Add B because the portfolio is less risky when B is added. B. Add A because the portfolio is less risky when A is added. OC. Add either one because both portfolios are equally risky.
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.
Tasman Co. has a beta of 0.9, and an expected return of 15%. Macquarie Co. has a beta of 1.2 and an expected return of 16%. Lucy plans to invest in both stocks. If risk-free rate is 2.5%, and Lucy are spreading her money equally on both stocks, what is the expected return on Lucy’s portfolio? If a portfolio of the two assets has a beta of 0.95, what are the portfolio weights? If Lucy includes one more risk-free asset into her existing portfolio in part (b), and this new portfolio has a beta of 1.3. what are the portfolio weights? How do we interpret the weight for the risk-free asset?
You are considering investing $1,000 in a T-bill that pays 4% and a risky portfolio, P, constructed with two risky securities, X and Y. The weights of X and Y in P are 30% and 70%, respectively. X has an expected rate of return of 13% and a standard deviation of 20%, and Y has an expected rate of return of 10% and a standard deviation of 14%. If you want to form a portfolio with an expected rate of return of 10%, what percentages of your money must you invest in the T-bill, X, and Y. respectively, if you keep X and Y in the same proportions to each other as in portfolio P? [Select] If the correlation coefficient between X and Y is 0.15 then what is the standard deviation of the complete portfolio? [Select]
You are examining a portfolio manager’s active investing portfolio. The portfolio has a beta of 2 and has an average return of 15%. The risk free rate is 1% and the market return is 10%, is the manager’s active investing strategy working ?
Consider a portfolio manager with a $20,500,000 equity portfolio under management. The manager wishes to hedge against a decline in share values using stock index futures. Currently a stock index future is priced at 1250 and has a multiplier of 250. The portfolio beta is 1.25. Calculate the number of contract required to hedge the risk exposure and indicate whether the manager should be short or long. 82 contracts long. 100 contract short. 82 contracts short. 100 contracts long.
Give typing answer with explanation and conclusion
You manage a risky portfolio with an expected rate of return of 20% and a standard deviation of 36%. The T-bill rate is 5%. Your client chooses to invest 60% of a portfolio in your fund and 40% in an essentially risk-free money market fund. What are the expected return and standard deviation of the rate of return on his portfolio? (Do not round intermediate calculations. Round "Standard deviation" to 2 decimal places.) Rate of Return Expected return % Standard deviation %

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