Corporate Finance
3rd Edition
ISBN: 9780132992473
Author: Jonathan Berk, Peter DeMarzo
Publisher: Prentice Hall
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Chapter 11, Problem 16P
a)
Summary Introduction
To determine: The volatility of an equally weighted portfolio with one stock.
Introduction:
The portfolio refers to a set of financial investments owned by the investor. The portfolio of investments includes the debentures, stocks, bonds, and mutual funds.
b)
Summary Introduction
To determine: The volatility of an equally weighted portfolio with 30 stocks.
c)
Summary Introduction
To determine: The volatility of an equally weighted portfolio with 1,000 stocks.
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Suppose that the average stock has a volatility of 53%, and that the correlation between pairs of stocks is 18%. Estimate the volatility of an equally weighted portfolio
with:
a. 1 stock
b. 30 stocks
c. 1,000 stocks
Suppose 0.3 is the correlation of returns between any two stocks in an equal-weighted portfolio containing N stocks. Suppose the volatility of any stock is 25%. Calculate the volatility of a portfolio with
· N = 24 stocks
· N = 100 stocks
· N = infinite stocks
Suppose that the average stock has a volatility of 49%, and that the correlation between pairs of stocks is 19%. Estimate the volatility of an equally weighted portfolio with:
a. 1 stock
b. 30 stocks
c. 1,000 stocks
a. The volatility of an equally weighted portfolio with 1 stock is 49 %. (Round to two decimal places.)
b. The volatility of an equally weighted portfolio with 30 stocks is%. (Round to two decimal places.)
Chapter 11 Solutions
Corporate Finance
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 - Prob. 5PCh. 11 - Prob. 6PCh. 11 - Prob. 7PCh. 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. 15PCh. 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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- Consider an equally weighed portfolio of stocks in which each stock has a volatility of 40%, and the correlation between each pair of stocks is 27%. Required: 1. What is the volatility of the portfolio as the number of stocks becomes arbitrarily large? 2.What is the average correlation of each stock with this large portfolio?arrow_forwardConsider an equally weighted portfolio that contains 80 stocks. If the average volatility of these stocks is 35% and the average correlation between the stocks is .4, then the volatility of this equally weighted portfolio is closest to: 0.2 0.14 0.41 0.22arrow_forwardConsider a stock portfolio consisting of two units of S' and one unit of S2. Calculate the probability of delta losses over one day, if the daily log-returns (X1, X2) of the stocks are independent with X1 are S = 100, S = 50. N(0.5, 1.1), X2 N(-0.2,0.5) and the current stocks valuearrow_forward
- Suppose you have invested $35,000 in stocks with a Beta of 0.9 and another $17,000 invested in stocks with a volatility (Beta) of 3.2%. Determine the volatility (Beta) percentage of the portfolio.arrow_forwardSuppose you have the following two stocks. Stock E(R) A 23 B 34 Standard Deviation 15 30 Suppose also that T-Bills yield 8%. a) Draw the capital allocation lines of the two stocks. Label the lines and the intercepts.arrow_forwardAssume that you formed a portfolio of three stocks, X, Y, and Z. The stock X's beta is 1.5, stock Y's beta is 2, and stock Z's beta is 0.5. If the weight of your wealth invested in stock X is 0.4, the weight invested in stock Y is 0.2, find the portfolio's beta.arrow_forward
- You are given the following probability distribution of returns for a stock. Use the data to calculate the expected return, standard deviation of returns, and coefficient of variation of returns for the stock. Report the CV to 4 decimal places (13.36% = 0.1336). Return Probability 8.0% 0.20 10.0% 0.10 12.0% 0.40 15.0% 0.20 16.0% 0.10arrow_forwarda) Share X and Share Y have the following returns with their respective probabilities. Share X Share Y Return Probability Return Probability 10% 0.3 15% 0.35% 0.31% 0.4-4% 0.4-10% 0.3 Calculate the following: i) The expected rate of returns for both shares. ii) The standard deviation for both shares. ii) On a stand-alone basis, select which stock is the riskier..arrow_forwardSuppose you allocate 2/5 of your portfolio value to a stock that has an expected return of 8% and the rest to another stock that has an expected return of 17%. What is the expected return on your two-stock portfolio? Note: Show your answer in units of percents, use plain numbers with at least two digits after the decimal (e.g., for 12.34%, type 12.34).arrow_forward
- The index model has been estimated for stock A with the following results: RA = 0.01 + 1.2RM + eA. σM = 0.15; σ(eA) = 0.10. The standard deviation of the return for stock A isarrow_forwardNeed allarrow_forwardYou own a portfolio that has $2,528 invested in Stock A and $4,124 invested in Stock B. If the expected returns on these stocks are 7 percent and 16 percent, respectively, what is the expected return (in percent) on the portfolio? Answer to two decimals.arrow_forward
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