Foundations of Finance (9th Edition) (Pearson Series in Finance)
9th Edition
ISBN: 9780134083285
Author: Arthur J. Keown, John D. Martin, J. William Petty
Publisher: PEARSON
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Chapter 6, Problem 5MC
Summary Introduction
To determine: The monthly holding period return.
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You own a portfolio that has $2,800 invested in Stock A and $3,900 invested in Stock B. Assume the expected returns on these stocks are 9 percent and 15 percent, respectively. What is the expected return on the portfolio? (
Please answer the question in the image below.
a. Calculate the average rate of return for each stock during the 5-year period.
b. 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?
c. Calculate the standard deviation of returns for each stock and for the portfolio.
d. If you are a risk-averse investor, then, assuming these are your only choices, would
you prefer to hold Stock A, Stock B, or the portfolio? Why?
You have observed the following returns over time:
Year
Stock X
Stock Y
Market
2009
14%
13%
12%
2010
19
7
10
2011
-16
-5
-12
2012
3
1
1
2013
20
11
15
Chapter 6 Solutions
Foundations of Finance (9th Edition) (Pearson Series in Finance)
Ch. 6 - a. What is meant by the investors required rate of...Ch. 6 - Prob. 2RQCh. 6 - What is a beta? How is it used to calculate r, the...Ch. 6 - Prob. 4RQCh. 6 - Prob. 5RQCh. 6 - Prob. 6RQCh. 6 - Prob. 7RQCh. 6 - What effect will diversifying your portfolio have...Ch. 6 - (Expected return and risk) Universal Corporation...Ch. 6 - (Average expected return and risk) Given the...
Ch. 6 - (Expected rate of return and risk) Carter, Inc. is...Ch. 6 - (Expected rate of return and risk) Summerville,...Ch. 6 - Prob. 5SPCh. 6 - Prob. 9SPCh. 6 - Prob. 10SPCh. 6 - Prob. 11SPCh. 6 - Prob. 12SPCh. 6 - (Capital asset pricing model) Using the CAPM,...Ch. 6 - Prob. 16SPCh. 6 - Prob. 17SPCh. 6 - a. Compute an appropriate rate of return for Intel...Ch. 6 - (Estimating beta) From the graph in the right...Ch. 6 - Prob. 20SPCh. 6 - Prob. 21SPCh. 6 - (Capital asset pricing model) The expected return...Ch. 6 - (Portfolio beta and security market line) You own...Ch. 6 - (Portfolio beta) Assume you have the following...Ch. 6 - Prob. 1MCCh. 6 - Prob. 2MCCh. 6 - Prob. 3MCCh. 6 - Prob. 4MCCh. 6 - Prob. 5MCCh. 6 - Prob. 6MCCh. 6 - Prob. 7MCCh. 6 - Prob. 8MCCh. 6 - Prob. 9MCCh. 6 - Prob. 10MCCh. 6 - Prob. 11MC
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- Consider the following six months of returns for two stocks and a portfolio of those two stocks: (Click the icon to view the monthly returns.) Note: The portfolio is composed of 50% of Stock A and 50% of Stock B. a. What is the expected return and standard deviation of returns for each of the two stocks? b. What is the expected return and standard deviation of returns for the portfolio? c. Is the portfolio more or less risky than the two stocks? Why? a. What is the expected return and standard deviation of returns for each of the two stocks? The expected return of Stock A is 0%. (Round to one decimal place.) The expected return of Stock B is 1%. (Round to one decimal place.) The standard deviation of Stock A is 0.04195. (Round to five decimal places.) (Round to five decimal places.) The standard deviation of Stock B is Monthly Returns Stock A Stock B Portfolio Jan 1% 0% 0.5% Feb 4% - 3% 0.5% D Mar -7% 8% ..... 0.5% Apr 2% - 1% 0.5% May - 3% 4% 0.5% Jun 3% - 2% 0.5% WOCHE X ansarrow_forwardConsider the following six months of returns for two stocks and a portfolio of those two stocks: (Click the icon to view the monthly returns.) Note: The portfolio is composed of 50% of Stock A and 50% of Stock B. a. What is the expected return and standard deviation of returns for each of the two stocks? b. What is the expected return and standard deviation of returns for the portfolio? c. Is the portfolio more or less risky than the two stocks? Why? a. What is the expected return and standard deviation of returns for each of the two stocks? The expected return of Stock A is %. (Round to one decimal place.) Monthly Returns Stock A Stock B Portfolio Jan 3% 0% 1.5% Feb 6% - 3% 1.5% Mar - 5% 8% 1.5% Apr 4% - 1% 1.5% May - 1% 4% 1.5% Jun 5% - 2% 1.5% n Xarrow_forward(Computing rates of return) From the following price data, compute the annual rates of return for Asman and Salinas. Time Asman $9 11 Salinas $31 2 3 4 10 13 28 32 36 (Click on the icon in order to copy its contents into a spreadsheet.) How would you interpret the meaning of the annual rates of return? The rate of return you would have earned on Asman stock from time 1 to time 2 is The rate of return you would have earned on Asman stock from time 2 to time 3 is The rate of return you would have earned on Asman stock from time 3 to time 4 is The rate of return you would have earned on Salinas stock from time 1 to time 2 is The rate of return you would have earned on Salinas stock from time 2 to time 3 is The rate of return you would have earned on Salinas stock from time 3 to time 4 is %. (Round to two decimal places.) %. (Round to two decimal places.) %. (Round to two decimal places.) %. (Round to two decimal places.) %. (Round to two decimal places.) %. (Round to two decimal places.)…arrow_forward
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