Investments
11th Edition
ISBN: 9781259277177
Author: Zvi Bodie Professor, Alex Kane, Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Chapter 8, Problem 6PS
A
Summary Introduction
To calculate: The standard deviations of A & B stocks.
Introduction: The Standard Deviation of a stock tells us historical volatility of an investment. For instance, a volatile stock carries a high standard deviation, and a stable stock carries a low standard deviation.
B
Summary Introduction
To Calculate: Supposing a portfolio is constructed; calculate the expected return, beta, standard deviation, and nonsystematic standard deviation of the portfolio constructed.
Introduction: The Standard Deviation of a stock tells us historical volatility of an investment. For instance, a volatile stock carries a high standard deviation, and a stable stock carries a low standard deviation.
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Suppose the market risk premium is 9 % and also that the standard deviation of returns on the market portfolio is 0.26 . Further assume that the correlation between the returns on ABX (Barrick Gold) stock and returns on the market portfolio is 0.62 , while the standard deviation of returns on ABX stock is 0.36 . Finally assume that the risk-free rate is 2 %. Under the CAPM, what is the expected return on ABX stock? (write this number as a decimal and not as a percentage, e.g. 0.11 not 11%. Round your answer to three decimal places. For example 1.23450 or 1.23463 will be rounded to 1.235 while 1.23448 will be rounded to 1.234)
An investiment portfolio consists of two securities, X and Y. The weight of X is 30%.
Asset X's expected return is 15% and the standard deviation is 28%.
Asset Y's expected return is 23% and the standard deviation is 33%.
Assume the correlation coefficient between X and Y is 0.37.
A. Calcualte the expected return of the portfolio.
B. Calculate the standard deviation of the portfolio return.
C. Suppose now the investor decides to add some risk free assets into this portfolio.
The new weights of X, Y and risk free assets are 0.21, 0.49 and 0.30. What is the standard deviation of the new portfolio?
The following portfolios are being considered for investment. During the period under consideration, RFR = 0.08.
Portfolio
Return
Beta
σi
P
0.14
1.00
0.05
Q
0.20
1.30
0.11
R
0.10
0.60
0.03
S
0.17
1.20
0.06
Market
0.12
1.00
0.04
Compute the Sharpe measure for each portfolio and the market portfolio. Round your answers to three decimal places.
Portfolio
Sharpe measure
P
Q
R
S
Market
Compute the Treynor measure for each portfolio and the market portfolio. Round your answers to three decimal places.
Portfolio
Treynor measure
P
Q
R
S
Market
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