Investments
11th Edition
ISBN: 9781259277177
Author: Zvi Bodie Professor, Alex Kane, Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Chapter 7, Problem 10CP
Summary Introduction
Concept introduction: The portfolio is a proportion of each security held of its total market value. A good portfolio should have a beta of +1 to -1.
To discuss:The portfolio that one might recommend.
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Consider a world that only consists of the three stocks shown in the following table:
a. Calculate the total value of all shares outstanding currently.
b. What fraction of the total value outstanding does each stock make up?
c. You hold the market portfolio, that is, you have picked portfolio weights equal to the answer
the total value of all stocks. What is the expected return of your portfolio?
Data table
(Click on the following icon in order to copy its contents into a spreadsheet.)
Total Number
Current Price per
of Shares Outstanding
Share
Stock
First Bank
Fast Mover
Funny Bone
107 million
46 million
207 million
$111
$120
$30
part with each stock's weight is equal to its contribution to the fraction of
Expected Return
17%
11%
16%
X
Jason Jackson is attempting to evaluate two possible portfolios consisting of the same five assets but held in different proportions. He is particularly interested in using beta to compare the risk of the portfolios and, in this regard, has gathered the following data:
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.
a. Calculate the betas for portfolios A and B.
b. Compare the risk of each portfolio to the market as well as to each other. Which portfolio is more risky?
Question content area bottom
Part 1
Data table
(Click on the icon here
in order to copy its contents of the data table below into a spreadsheet.)
Portfolio Weights
Asset
Asset Beta
Portfolio A
Portfolio B
1
1.35
17%
29%
2
0.69
26%
8%
3
1.24
10%
22%
4
1.06
11%
20%
5
0.87
36%
21%
Total
100%
100%
a. The beta of portfolio A is
enter your response here.
(Round to three…
Of the following investment vehicles, which is the best and which is the worst? Choose from common stocks, mutual funds, ETFs, REITs. Explain why.
Chapter 7 Solutions
Investments
Ch. 7 - Prob. 1PSCh. 7 - Prob. 2PSCh. 7 - Prob. 3PSCh. 7 - Prob. 4PSCh. 7 - Prob. 5PSCh. 7 - Prob. 6PSCh. 7 - Prob. 7PSCh. 7 - Prob. 8PSCh. 7 - Prob. 9PSCh. 7 - Prob. 10PS
Ch. 7 - Prob. 11PSCh. 7 - Prob. 12PSCh. 7 - Prob. 13PSCh. 7 - Prob. 14PSCh. 7 - Prob. 15PSCh. 7 - Prob. 16PSCh. 7 - Prob. 17PSCh. 7 - Prob. 18PSCh. 7 - Prob. 19PSCh. 7 - Prob. 20PSCh. 7 - Prob. 21PSCh. 7 - Prob. 22PSCh. 7 - Prob. 23PSCh. 7 - Prob. 1CPCh. 7 - Prob. 2CPCh. 7 - Prob. 3CPCh. 7 - Prob. 4CPCh. 7 - Prob. 5CPCh. 7 - Prob. 6CPCh. 7 - Prob. 7CPCh. 7 - Prob. 8CPCh. 7 - Prob. 9CPCh. 7 - Prob. 10CPCh. 7 - Prob. 11CPCh. 7 - Prob. 12CPCh. 7 - Prob. 13CP
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