Your portfolio consists of the following investment in stock with corresponding beta:P100,000 in a 0.8 beta stockP150,000 in a 1.2 beta stockP50,000 in a 1.8beta stockLast year, the required rate of return of this portfolio is13%. The quoted risk-free rate on the short-term BSPissued treasurybill is 7%. This year the only change noted is the increased by 2% on the market risk premium. What is the current requiredrate of return of this portfolio?а.6.14%b.7.84%С.15.33%d.16.75% The portfolio managerof CBS Inc. is holdingthe following investments:Stock NameBetaAmount InvestedСВС1.410,000PCCI120,000CIBI0.840,000The financialmanager plans to sellof Stock PCCI on which the proceeds from the sale will be used to purchaseanother P15,000 of Stock CBC and another P5,000 of Stock CIBI. The risk-free rate is 5% and the marketreturn is 10.5%. How many percentage points higherwill the required return on the portfolio be after hecompletes thistransaction?a.0.05%b.0.13%C.0.39%d.0.62%

We have the portfolio with different values of stocks and different betas. We need to calculate the…

Answered: Your portfolio consists of the…

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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6. You are given the following information: Return on three month T - bills - 6% Expected return on S&P 500 = 9% Draw the security - market line. Calculate the expected rate of return on a stock with a beta equal to 1.5.
Assume that the expected return and standard deviation of the company stock will be 17 percent, respectively. How appropriate is the sharpe ratio for these assets? When would you use the sharpe ratio?
A stock is expected to pay a dividend of $1.50 at the end of the year (i.e., D1 = $1.50), and it should continue to grow at a constant rate of 9% a year. If its required return is 14%, what is the stock's expected price 1 year from today? Do not round intermediate calculations. Round your answer to the nearest cent.
A share of stock with a beta of 0.8 currently sells for $50. Investors expect the stock to pay a year-end dividend of $5. The T-bill rate is 1%, and the market risk premium is 6%. If the stock is perceived to be fairly priced today, what much be investors' expectation of the price of the stock at the end of the year? $_ Hint: [CAPM] Expected Return (R) = Rf + Beta *Market Risk Premium; Expected Return (R) = Dividend Yield + Capital Gains Yield, where dividend yield=D1/PO and capital gains yield = (P1-Po)/PO
For a two-period binomial model, you are given: Each period is one year. The current price for a non dividend-paying stock is 20. u = 1.2840, where u is one plus the rate of capital gain on the stock per period if the stock price goes up. d = 0.8607, where d is one plus the rate of capital loss on the stock per period if the stock price goes down. The continuously compounded risk-free interest rate is 5%. Calculate the price of an American call option on the stock with a strike price of 22.
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A share of stock with a beta of 1.20 now sells for 55. Investors expect the stock to pay a year-end dividend of 2.90. The T-bill rate is 7 percent, and the market risk premium is 8 percent. If the stock is perceived to be fairly priced today,What must be investors’ expectations of the price of the stock at the end of the year?
Suppose you invest 70% of your fund in stock A and the other 30% in stock B. If stock A and B are expected to have the following returns next year, then what are the standard deviations for Stock A, Stock B and the portfolio returns respectively? Probability State of Economy Recession Boom 9.60%; 11.6% 12.60%; 14.2% 2.60%; 14.05% 9.60%; 7.80% .2 .8 Stock A -9% 18% Stock B 1% 3%
Assume Merck (MRK) just finished paying an annual dividend of $2.1 (for 2019). You look up their beta and it equals 0.34 , implying it's much less risky than the market portfolio. The current risk free rate equals 1.96 %. Assume a market risk premium of 9.9 %. Merck's current stock price is $79. Assuming investors expect Merck to grow at a constant rate in perpetuity, what is that growth rate expectation? (write this number as a decimal and not as a percentage, e.g. 0.11 not 11%. Round your answer to three decimal places. For example 1.23450 or 1.23463 will be rounded to 1.235 while 1.23448 will be rounded to 1.234)
Click to see additional instructions Today, you start putting $200 into the bank every other month (bimonthly) for the next 10 years. The account pays annual interest of 3.5%. A month after your last deposit, rounded to the nearest dollar, you will have $ account. [Do not use commas or spaces in your numerical answer.] 14360.34 in the
Consider three stocks: Q, R and S Beta STD (annual) Forecast for Nov 2009 Dividend Stock Price Q 0.45 35% $0.50 $45 R 1.45 40% 0 $75 S -0.20 40% $1.00 $20 Use a risk free rate of 2.0% and an expected market return of 9.5%. The market's standard deviation is 18%. Assume that the next dividend will be paid after one year, at t=1. Required: According to CAPM, what is the expected rate of return of each stock?
A stock has a current price of 50. The continuously compounded risk - free interest rate is 8%. The stock is going to pay a dividend of 0.5 one month from now and another dividend of 1 five months from now. Suppose that the market prepaid forward price of a prepaid forward contract that delivers one share after 6 months is 49. Construct an arbitrage portfolio and give the arbitrage profit.

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