Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Question
Chapter 11, Problem 14P
a)
Summary Introduction
To determine: The annual returns for a portfolio.
Introduction:
Return is a loss or gain incurred on the investment made by the investors. It is expressed in terms of percentage.
b)
Summary Introduction
To determine: The lowest annual return of the portfolio and comparisons between the lowest annual return of the individual stock or portfolios.
Introduction:
Portfolio refers to a set of financial investments owned by the investor. The portfolio of investments includes debentures, stocks, bonds, and mutual funds.
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Using the data in the following table,, consider a portfolio that maintains a 50% weight on stock A and a 50% weight on stock B
a. What is the return each year of this portfolio?
b. Based on your results from part (a), compute the average return and volatility of the portfolio.
c. Show that (i) the average return of the portfolio is equal to the (weighted) average of the average returns of the two stocks, and (ii) the volatility of the portfolio
equals the same result as from the calculation in Eq. 11.8.
d. Explain why the portfolio has a lower volatility than the average volatility of the two stocks.
a. What is the return each year of this portfolio?
Enter the return of this portfolio for each year in the table below (Round to two decimal places.)
Year
Portfolio
Data table
2010
%
2011
%
2012
%
2013
%
(Click on the following icon in order to copy its contents into a spreadsheet.)
2014
2015
%1
1%
Year
2010
2011
2012
2013
2014
2015
Stock A
-10%
20%
5%
5%
2%
9%
Stock B
21%
7%
30%
-3%
8%…
Using the data in the following table,
LOADING...
,
consider a portfolio that maintains a
75% weight on stock A and a
25% weight on stock B.
a. What is the return each year of this portfolio?
b. Based on your results from part
(a),
compute the average return and volatility of the portfolio.
c. Show that (i) the average return of the portfolio is equal to the (weighted) average of the average returns of the two stocks, and (ii) the volatility of the portfolio equals the same result as from the calculation in Eq. 11.9.
d. Explain why the portfolio has a lower volatility than the average volatility of the two stocks.
Question content area bottom
Part 1
a. What is the return each year of this portfolio?
Enter the return of this portfolio for each year in the table below: (Round to two decimal places.)
Year
2010
2011
2012
2013
2014
2015
Portfolio
enter your response here%
enter your response here%
enter your response…
a) Compute the expected return for stocks A and B b) Compute the standard deviation for stocks A and B. Which stock is riskier?c) Compute the expected return of a portfolio that comprises of 70% stock A and 30% stock B d) Compute the standard deviation of returns for the market portfolio e) Which, among stocks A, B and the market is riskier? Respond in light of your computations
Chapter 11 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 11.1 - What is a portfolio weight?Ch. 11.1 - How do we calculate the return on a portfolio?Ch. 11.2 - What does the correlation measure?Ch. 11.2 - How does the correlation between the stocks in a...Ch. 11.3 - Prob. 1CCCh. 11.3 - Prob. 2CCCh. 11.4 - Prob. 1CCCh. 11.4 - Prob. 2CCCh. 11.4 - Prob. 3CCCh. 11.5 - What do we know about the Sharpe ratio of the...
Ch. 11.5 - If investors are holding optimal portfolios, how...Ch. 11.6 - When will a new investment improve the Sharpe...Ch. 11.6 - Prob. 2CCCh. 11.7 - Prob. 1CCCh. 11.7 - Prob. 2CCCh. 11.8 - Prob. 1CCCh. 11.8 - According to the CAPM, how can we determine a...Ch. 11 - You are considering how to invest part of your...Ch. 11 - You own three stocks: 600 shares of Apple...Ch. 11 - Consider a world that only consists of the three...Ch. 11 - There are two ways to calculate the expected...Ch. 11 - Using the data in the following table, estimate...Ch. 11 - Use the data in Problem 5, consider a portfolio...Ch. 11 - Using your estimates from Problem 5, calculate the...Ch. 11 - Prob. 8PCh. 11 - Suppose two stocks have a correlation of 1. If the...Ch. 11 - Arbor Systems and Gencore stocks both have a...Ch. 11 - Prob. 11PCh. 11 - Suppose Avon and Nova stocks have volatilities of...Ch. 11 - Prob. 13PCh. 11 - Prob. 14PCh. 11 - Prob. 16PCh. 11 - What is the volatility (standard deviation) of an...Ch. 11 - Prob. 18PCh. 11 - Prob. 19PCh. 11 - Prob. 20PCh. 11 - Suppose Ford Motor stock has an expected return of...Ch. 11 - Prob. 22PCh. 11 - Prob. 23PCh. 11 - Prob. 24PCh. 11 - Prob. 25PCh. 11 - Prob. 26PCh. 11 - A hedge fund has created a portfolio using just...Ch. 11 - Consider the portfolio in Problem 27. Suppose the...Ch. 11 - Prob. 29PCh. 11 - Prob. 30PCh. 11 - You have 10,000 to invest. You decide to invest...Ch. 11 - Prob. 32PCh. 11 - Prob. 33PCh. 11 - Prob. 34PCh. 11 - Prob. 35PCh. 11 - Prob. 36PCh. 11 - Assume all investors want to hold a portfolio...Ch. 11 - In addition to risk-free securities, you are...Ch. 11 - You have noticed a market investment opportunity...Ch. 11 - Prob. 40PCh. 11 - When the CAPM correctly prices risk, the market...Ch. 11 - Prob. 45PCh. 11 - Your investment portfolio consists of 15,000...Ch. 11 - Suppose you group all the stocks in the world into...Ch. 11 - Prob. 48PCh. 11 - Consider a portfolio consisting of the following...Ch. 11 - Prob. 50PCh. 11 - What is the risk premium of a zero-beta stock?...
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