Consider the following information: State of Economy Probability of State of Economy Boom Bust .70 .30 a. Expected return b. Variance of portfolio Rate of Return if State Occurs Stock A Stock B .08 .27 % .02 .33 a. What is the expected return on an equally weighted portfolio of these three stocks? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. What is the variance of a portfolio invested 25 percent each in A and B and 50 percent in C? Note: Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161. Stock C .38 -.18

Consider the following information: State of Economy Probability of State of Economy Boom Bust .70 .30 a. Expected return b. Variance of portfolio Rate of Return if State Occurs Stock A Stock B .08 .27 % .02 .33 a. What is the expected return on an equally weighted portfolio of these three stocks? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. What is the variance of a portfolio invested 25 percent each in A and B and 50 percent in C? Note: Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161. Stock C .38 -.18

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Given the returns and probabilities for the three possible states listed below, calculate the covariance between the returns of Stock A and Stock B. For convenience, assume that the expected returns of Stock A and Stock B are 8.10 percent and 11.60 percent, respectively. (Round answer to 4 decimal places, e.g. 0.0768.) Good OK Poor Covariance Probability 0.22 0.60 0.18 Return on Stock A 0.30 0.10 -0.25 Return on Stock B 0.50 0.10 -0.30
If you plot the relationship between portfolio expected return and portfolio beta, what is the slope of the line that results? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) | Slope of the line %
Consider the following information: State of Economy Probability of State of Economy Boom Bust .68 :32 a. Expected return b. Variance of portfolio Rate of Return if State Occurs Stock A Stock B Stock C .11. .15 .05 .21 .26 -.06 a. What is the expected return on an equally weighted portfolio of these three stocks? Note: Do not round Intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. What is the variance of a portfolio invested 23 percent each in A and B and 54 percent in C? Note: Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161.
Suppose the expected returns and standard deviations of Stocks A and B are E(RA) = .092, E(RB) = 152, đA = .362, and Og = .622. %3D Calculate the expected return of a portfolio that is composed of 37 percent A and 63 percent B when the correlation between the returns on A and B is .52. (Do not a-1. round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Calculate the standard deviation of a portfolio that is composed of 37 percent A and 63 percent B when the correlation coefficient between the returns on A and B is .52. а-2. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Calculate the standard deviation of a portfolio with the same portfolio weights as in h part (a) when the correlation coefficient between the returns on A and B is -.52. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a-1.…
b. Consider the following information about three stocks: Probability of State of i. ii. iii. iv. State of Economy V. Boom Recession Economy 0.40 0.60 From the information given, you are required to answer the following questions. Compute the Standard Deviation for each stock. Compute the Coefficient Variation for each stock. Based on your computation in part (i) and (ii), which stock is riskier? Explain your answer. Rate of Return if State Occurs Stock Hang Stock Hang Jebat 7% 13% Tuah 28% (5%) Stock Hang Kasturi 15% 3% Assume that you have RM14,000 invested in Stock Hang Jebat whose beta is 1.5, RM19,000 invested in Stock Hang Kasturi whose beta is 2.5 and RM17,000 invested in Stock Hang Tuah whose beta is 1.6. Determine what is the beta of this portfolio. Based on your answer in part (iv), compute the required rate of return for this portfolio, given that the market rate of return is 13% and risk-free rate is 5%.
Consider the following information: State of Economy Boom Bust Probability of State of Economy .75 .25 a. Expected return b. Variance of a portfolio Rate of Return if State Occurs. Stock C .27 -.21 Stock A .07 .12 a. What is the expected return on an equally weighted portfolio of these three stocks? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. What is the variance of a portfolio invested 20 percent each in A and B and 60 percent in C? Note: Do not round intermediate calculations and round your answer to 6 decimal places, e.g...161616. Stock B .18 -.08 %
Consider the following Information: Rate of Return If State Occurs State of Economy Probability of State of Economy Boom .58 Stock A .08 Stock B .17 Stock C .37 Bust .42 14 .06 -.04 a. What is the expected return on an equally weighted portfolio of these three stocks? (Do not round Intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the variance of a portfolio Invested 20 percent each in A and B and 60 percent in C? (Do not round Intermediate calculations and round your answer to 6 decimal places, e.g., .161616.) a. Expected return b. Variance %
Consider the following information: State of Economy Probability of State of Economy Boom Bust .72 .28 a. Expected return b. Variance of portfolio Rate of Return if State Occurs Stock A Stock B .04 .25 13.73 % .10 .19 a. What is the expected return on an equally weighted portfolio of these three stocks? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. What is the variance of a portfolio invested 27 percent each in A and B and 46 percent in C? Note: Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161. Stock C .30 -.10
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 0.03 + 0.7 RM + eA RB = -0.02+ 1.2 RM + eB σM =0.20; R-square A = 0.25 R-square B = 0.20 What is the standard deviation of A & B, respectively? Group of answer choices 0.54, 0.28 0.28, 0.54 0.45, 0.50 0.50, 0.45
You are given the following information: State ofEconomy Return onStock A Return onStock B Bear .112 −.055 Normal .105 .158 Bull .083 .243 Assume each state of the economy is equally likely to happen. a. Calculate the expected return of each stock. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. Calculate the standard deviation of each stock. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the covariance between the returns of the two stocks? (A negative answer should be indicated by a minus sign, Do not round intermediate calculations and round your answer to 6 decimal places, e.g., .161616.) d. What is the correlation between the returns of the two stocks? (A negative answer should be indicated by a minus sign, Do not round intermediate calculations and round your answer to 4…
Given: Calculate the expected returns and expected standard deviations of a two-stock portfolio having a correlation coefficient of 0.70 under the following conditions a. w1 = 1.00 b. w1 = 0.75 c. w1 = 0.50 d. w1 = 0.25 e. w1 = 0.05 Plot the results on a return-risk graph. Without calculations, draw in what the curve would look like first if the correlation coefficient had been 0.00 and then if it had been −0.70.
The market and Stock J have the following probability distributions: Probability rM rJ 0.3 14 % 18 % 0.4 10 4 0.3 18 13 Calculate the expected rates of return for the market and Stock J. Round your answers to one decimal place. Expected rate of return (Market): % Expected rate of return (Stock J): % Calculate the standard deviations for the market and Stock J. Do not round intermediate calculations. Round your answers to two decimal places. Standard deviation (Market): % Standard deviation (Stock J): %

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