Essentials of Investments (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
10th Edition
ISBN: 9780077835422
Author: Zvi Bodie Professor, Alex Kane, Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 5, Problem 9CP
Use the following scenario analysis for stocks X and Y to answer CFA Questions 7 through 9.
Bear Market Normal Market Bull Market Probability 0.2 0 3 Stock X –20% 18% 50% Stock Y –15% 20% 10%
9. Assume that of your $l0,000 portfolio, you invest $9000 in stock X and $1,000 in stock Y. What is the expected return on your portfolio? (LO 5-3)
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Consider the following simplified APT model:
Factor
Expected Risk Premium
Market
6.4%
Interest Rate
-0.6%
Yield Spread
5.1%
Factor Risk Exposures
Market
Interest Rate
Yield Spread
Stock
Stock(b1)
(b2)
(b3)
P
1.0
-2.0
-0.2
P2
1.2
0
0.3
P3
0.3
0.5
1.0
Required:
1. Calculate the expected return for the above stocks. Assume risk free rate is 5%. Consider a portfolio with equal investments in stocks P, P2 and P3
2.What are the factor risk exposures for the portfolio?
3.What is the portfolio’s expected return?
Consider the following simplified APT model: Factor Expected Risk Premium
Market 6.4%
Interest Rate -0.6%
Yield Spread 5.1% Factor Risk Exposures
Market Interest Rate Yield Spread Stock Stock (b1) (b2) (b3)
P 1.0 -2.0 -0.2
P2 1.2 0 0.3
P3 0.3 0.5 1.0 a) Calculate the expected return for the above stocks. Assume risk free rate is 5%. Consider a portfolio with equal…
Consider the following scenario analysis for stocks X and Y. Assume that you have a portfolio worth $10,000. You invest $9,000 in Stock X and $1,000 in Stock Y. What is the risk of the porfolio?
Bear Market
Normal Market
Bull Market
Probability
0.2
0.5
0.3
Stock X
-20%
18%
50%
Stock Y
-15%
20%
10%
Chapter 5 Solutions
Essentials of Investments (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 5 - Prob. 1PSCh. 5 - Prob. 2PSCh. 5 - When estimating a Sharpe ratio, would it make...Ch. 5 - You’ve just decided upon your capital allocation...Ch. 5 - Prob. 5PSCh. 5 - The stock of Business Adventures sells for $40 a...Ch. 5 - Prob. 7PSCh. 5 - a. Suppose you forecast that the standard...Ch. 5 - Using the historical risk premiums as your guide,...Ch. 5 - What has been the historical average real rate of...
Ch. 5 - Consider a risky portfolio. The end-of-year cash...Ch. 5 - For Problems 12-16, assume that you manage a risky...Ch. 5 - For Problems 12-16, assume that you manage a risky...Ch. 5 - For Problems 12-16, assume that you manage a risky...Ch. 5 - For Problems 12-16, assume that you manage a risky...Ch. 5 - For Problems 12-16, assume that you manage a risky...Ch. 5 - Prob. 17PSCh. 5 - You manage an equity fund with an expected risk...Ch. 5 - What is the reward-to--volatility (Sharpe) ratio...Ch. 5 - Download the annual returns on the combined...Ch. 5 - A portfolio of nondividend-paying stocks earned a...Ch. 5 - Which of the following statements about the...Ch. 5 - Which of the following statements reflects the...Ch. 5 - Use the following data in answering CFA Questions...Ch. 5 - Prob. 5CPCh. 5 - Lise the following data in answerifng CFA Question...Ch. 5 - Use the following scenario analysis for stocks X...Ch. 5 - Prob. 8CPCh. 5 - Use the following scenario analysis for stocks X...Ch. 5 - 10. Probabilities for three states of the economy...Ch. 5 - 11. An analyst estimates that a stock has the...Ch. 5 - Prob. 1WMCh. 5 - Prob. 2WMCh. 5 - Prob. 3WM
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