Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN: 9781337395083
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Chapter 2, Problem 13P
a)
Summary Introduction
To compute: The average return of each stock for the period of 5 years.
b)
Summary Introduction
To compute: The realized
c)
Summary Introduction
To compute: The standard deviation of portfolio and each stock.
d)
Summary Introduction
To discuss: The reason why and which
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You are considering an investment in either individual stocks or a portfolio of stocks. The two stocks you are researching, Stock A and Stock B, have the following historical returns:
Year r ̄A r ̄B
2014 -20.00% -5.00%
2016 42.00 15.00
2017 20.00 -13.00
2018 -8.00 50.00
2019 25.00 12.00
Calculate the average rate of return for each stock during the 5-year period.
Suppose you had held a portfolio consisting of 50% of Stock A and 50% of Stock B. What would have been the realized rate of return on the portfolio in each year? What would have been the average return on the portfolio during this period?
Calculate the standard deviation of returns for each stock and for the portfolio.
Suppose you are a risk-averse investor. Assuming Stocks A and B are your only choices, would you prefer to hold Stock A, Stock B,…
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%…
You are examining a portfolio consisting of three stocks. Using the data in the table
a. Compute the annual returns for a portfolio with 25% invested in North Air, 25% invested in West Air, and 50% invested in Tex Oil.
b. What is the lowest annual return for your portfolio in part (a)? How does it compare with the lowest annual return of the individual stocks or portfolios in the table above.
a. Compute the annual returns for a portfolio with 25% invested in North Air, 25% invested in West Air, and 50% invested in Tex Oil.
The annual return for 2014 will be: (Round to two decimal places.)
Year
2014
Year
2016
North Air
21%
Year
2018
North Air
The annual return for 2015 will be: (Round to two decimal places.)
Year
2019
29%
6%
Year
2015
The annual return for 2016 will be: (Round to two decimal places.)
North Air
North Air West Air
West Air
-6%
8%
North Air
-1%
West Air
North Air
21%
8%
6%
The annual return for 2017 will be: (Round to two decimal places.)
West Air
Year
2017
The annual…
Chapter 2 Solutions
Intermediate Financial Management (MindTap Course List)
Ch. 2 - Prob. 2QCh. 2 - Security A has an expected return of 7%, a...Ch. 2 - Prob. 4QCh. 2 - Prob. 5QCh. 2 - Your investment club has only two stocks in its...Ch. 2 - AA Corporations stock has a beta of 0.8. The...Ch. 2 - Suppose that the risk-free rate is 5% and that the...Ch. 2 - An analyst has modeled the stock of a company...Ch. 2 - Prob. 5PCh. 2 - The market and Stock J have the following...
Ch. 2 - Prob. 7PCh. 2 - Prob. 8PCh. 2 - Prob. 9PCh. 2 - Prob. 10PCh. 2 - Prob. 11PCh. 2 - Stock R has a beta of 1.5, Stock S has a beta of...Ch. 2 - Prob. 13PCh. 2 - You have observed the following returns over time:...Ch. 2 - Prob. 1MCCh. 2 - Prob. 2MCCh. 2 - Prob. 3MCCh. 2 - What is the stand-alone risk? Use the scenario...Ch. 2 - Prob. 5MCCh. 2 - Prob. 6MCCh. 2 - Prob. 7MCCh. 2 - Prob. 8MCCh. 2 - Prob. 9MCCh. 2 - Prob. 10MCCh. 2 - Prob. 11MCCh. 2 - Prob. 12MCCh. 2 - Prob. 13MCCh. 2 - Prob. 14MCCh. 2 - Prob. 15MCCh. 2 - Prob. 16MCCh. 2 - Prob. 17MCCh. 2 - Prob. 18MC
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