Intermediate Financial Management
14th Edition
ISBN: 9780357516782
Author: Brigham, Eugene F., Daves, Phillip R.
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Question
Chapter 2, Problem 6MC
Summary Introduction
Case summary:
Person X is a graduate, who is working as a financial planner at company C. The president and congress involved in the dispute of acrimonious over the financing of debt and budget. The dispute which is not settled at the end of the year and effected the rate of interest.
The responsibility of person X is to compute the risk of bond portfolio of client. Person X should explain the probable scenarios for the dispute resolution and compute
To compute: The portfolio returns for each year, standard deviation, and average return and the way in which risk of the two stocks compare with the single stock risk.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Ms. B has $1000 to invest. She is considering investing in the common stock of company M. In addition, Ms. B will either borrow or lend at the risk-free rate. Ms. B decide to invest $350 in common stock of company M and $650 placed in the risk- free asset. The relevant parameters are
1) What is the expected return? 2) What is the variance of the portfolio? 3) What is the standard deviation of the portfolio?
I need the standard deviation of the portfolio with stock B please!
Your client has $100,000 invested in stock A. She would like to build a two-stock portfolio by investing another $100,000 in either stock B or C. She wants a portfolio with an expected return of at
least 15.0% 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?
Expected Return Standard Deviation Correlation with A
A
(BC
16%
14%
14%
45%
38%
38%
1.00
0.18
0.31
The expected return of the portfolio with stock B is ☐ %. (Round to one decimal place.)
Chapter 2 Solutions
Intermediate Financial Management
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 - Prob. 5PCh. 2 - The market and Stock J have the following...Ch. 2 - Prob. 7P
Ch. 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. 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
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Suppose your client asks for your advice about which portfolio she should invest in. After some research, you find the following risky portfolios that are suitable for your client. Based on her previous financial contracts, you estimate that her risk aversion coefficient is 8.5. The return on a 9-month T-bill is 6%. Which asset would you recommend for your client? Low Risk Expected Return 0.07 Std Deviation 0.05 The 9-month T-bill. The low-risk portfolio. The high-risk portfolio. O The medium-risk portfolio. Medium Risk 0.09 0.1 High Risk 0.13 0.2arrow_forwardYour client has $102,000 invested in stock A. She would like to build a two-stock portfolio by investing another $102,000 in either stock B or C. She wants a portfolio with an expected return of at least 14.0% 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? Expected Return Standard Deviation Correlation with A A B с 15% 13% 13% 47% 40% 40% Part 1 of 5 The expected return of the portfolio with stock B is 1.00 0.11 0.32 %. (Round to one decimal place.)arrow_forwardYou have been provided the following information as part of a consultation query:The risk free rate is 3.2%The market risk premium (rM - rRF) is 5.3%Stock A - has a beta of 1.2 betaStock B - has a beta of 0.85 beta (a). What is the required rate of return on each stock? (b). Assume that investors become less willing to take on risk (ie., they become more riskaverse), so the market risk premium rises 6%. Assume that the risk-free rate remains constant. What effect will this have on the required rates of return on the two stocks?arrow_forward
- You are an analyst for a large public pension fund and you have been assigned the task of evaluating two different external portfolio managers (Y and Z). You consider the following historical average return standard deviation, and CAPM beta estimates for these two managers over the past five years: Additionally , your estimate for the risk premium for the market portfolio is 5.00% and the risk-free rate is currently 4.50% a) For both Manager Y and Manager Z, calculate the expected return using the CAPM, Express your answers to the nearest basis point (i.e. xx.xx%) Portfolio Actual Avg.Return Standard Deviation Beta Manager Y 10.20% 12.00% 1.2 Manager Z 8.80% 9.90% 0.8arrow_forwardYour employer has asked you to investigate the firm’s portfolio risk and return. The portfolio comprises three stocks. It is invested 50 percent in stock A, 30 percent in stock B and 20 percent in stock C. You gathered the following information: a) Determine what is the portfolio’s expected return b) Determine the portfolio’s variance and standard deviation c) Assume that the expected risk-free rate is 2.75 percent. Determine the expected risk premium on the portfolio.arrow_forwardYour client is considering purchasing stocks. The actual return of one o his choices follows here. Assist him by calculating the standard deviation and advise him what the risk is. Stock 'A' Actual Returns = 6%, 12%, 8%, 10% 0.0164 0.0258 0.0542 0.1072arrow_forward
- You are reviewing two investment opportunities: the shares of company A and company B. Company A has a beta of 1.01 and a standard deviation of 20%. Company B has a beta of 1.30 and a standard deviation of 15%. Which security has a greater overall risk (choose one)? Company B Company A Which security has a greater systematic risk (choose one)? Company B Company A Which security should offer a higher expected return (choose one)? Company A Company Barrow_forward) You estimate that the expected return of your portfolio is 30%. The standard deviation of the return is 25%. a. The returns of your portfolio are normally distributed. What is the probability of your portfolio suffering a loss greater than 20% (i.e., having a return that is less than -20%)? You may find the figure below helpful in answering the question (you can also use Excel). b. How would your answer to part a) change if the returns of your portfolio exhibited negative skewness (relative to the normal distribution). You do not need to do any calculations here - you just need to state whether it would be the same, higher or lower. Please explain your answer for full credit. 68.26% 95.44% 99.74% -30 -20 -10 +1g +20 +30 +40 Rate of return (%) E Focus MacBook Proarrow_forwardGive typing answer with explanation and conclusion Assume that your client would prefer to invest her entire wealth into a portfolio with an annual risk premium of 6% and a standard deviation of 12%. You have constructed a risky portfolio with an expected return of 10% and a standard deviation of 15%. T-Bills are currently yielding 4%. What is the optimal allocation, y, to the risky portfolio given your client's risk preferences? What is the expected return and standard deviation on your client's optimal complete portfolio?arrow_forward
- You are an analyst for a large public pension fund and you have been assigned the task of evaluating two different external portfolio managers (Y and Z). You consider the following historical average return standard deviation, and CAPM beta estimates for these two managers over the past five years: Additionally, your estimate for the risk premium for the market portfolio is 5.00% and the risk-free rate is currently 4.50% c) Explain whether you can conclude from the info. In Part b if: (1) either manager outperformed the other on a risk-adjusted basis, and (2) either manager outperformed market expectations in general Portfolio Actual Avg.Return Standard Deviation Beta Manager Y 10.20% 12.00% 1.2 Manager Z 8.80% 9.90% 0.8arrow_forwardi need the answer quicklyarrow_forwardYou are constructing a simple portfolio using two stocks A and B. Both have the same expected return of 12%. The standard deviation of A's return is 20% and the standard deviation of B's return is 30%; the correlation of their return is 50%. How will you allocate your investment between these two stocks to minimize the risk of your portfolio? Please show your derivation by attaching a file belowarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Portfolio Management; Author: DevTechFinance;https://www.youtube.com/watch?v=Qmw15cG2Mv4;License: Standard YouTube License, CC-BY