Assume that you've just inherited $500,000 and have decided to invest a big chunk of it ($350,000, to be exact) in common stocks. Your objective is to build up as much capital as you can over the next 20 years, and you're willing to tolerate a "good deal" of risk. a. What type of stocks (blue chips, income stocks,
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Assume that you've just inherited $500,000 and have decided to invest a big chunk of it ($350,000, to be exact) in common stocks. Your objective is to build up as much capital as you can over the next 20 years, and you're willing to tolerate a "good deal" of risk.
a. What type of stocks (blue chips, income stocks, and so on) do you think you'd be most interested in, and why? Select at least three type of stocks and briefly explain the rationale for selecting each.
b. Would your selections change if you were dealing with a smaller amount of money--sa, only $50,000? What if you were more risk-adverse investor?
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- 1. You are analyzing two possible stock market investment strategies. For each of the following, identify whether or not it would be classified as a fair bet. Would a risk-averse person make either of these investments? Why or why not? a. One strategy is to invest in a blue chip stock like Microsoft that has a proven track record. There is a 25% chance that the company continues its steady growth and your wealth increases by $30,000. There is a 75% chance that the company becomes unprofitable and your wealth decreases by $10,000. b. Another strategy is to invest in a start-up. There is a 10% chance that the company is a success and your wealth increases by $100,000. However, there is a 90% chance that the company fails and your wealth decreases by $20,000.2B) You have $600,000 to invest in the stock market. Suppose you invested one-third of your wealth in stock Q and the rest in stock L. These stocks have the following characteristics: Stock Q has an expected return of 10% and a standard deviation of 7%. Stock L has an expected return of 18% and a standard deviation of 11%. Determine the expected return and standard deviation on a portfolio of stocks Q and L, when the two stocks are uncorrelated and when they are negatively perfectly correlated. Interpret and compare your answers in these two cases.Suppose you visit with a financial adviser, and you are considering investing some of your wealth in one of three investment portfolios: stocks, bonds, or commodities. Your financial adviser provides you with the following table, which gives the probabilities of possible returns from each investment: Stocks Bonds Commodities Probability Return Probability Return Probability Return 20% 15% 0.15 20% 0.6 10% 0.2 0.2 12.5% 0.4 7.5% 0.2 0.25 0.2 0.4 3.8% 0.2 0.2 0% To maximize your expected return, you should choose O A. commodities. B. bonds. OC. stocks. OD. All of the portfolios have the same expected return
- You want to create a portfolio equally as risky as the market, and you have $500,000 to invest. Information about the possible investments is given below: Asset Stock A Stock B Stock C Risk-free asset Investment $135,000 $145,000 Beta .80 1.25 1.40 How much will you invest in Stock C? How much will you invest in the risk-free asset? Investment in Stock C Investment in risk-free asset (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)You want to create a portfolio equally as risky as the market, and you have $500,000 to invest. Information about the possible investments is given below: Asset Stock A Stock B Stock C Risk-free asset Investment, $ 141,000 $ 139,000 Beta .86 1.31 1.46 How much will you invest in Stock C? How much will you invest in the risk-free asset? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Investment in Stock C Investment in risk-free asset(a)As an investor, you are holding the following investments: Stock Amount invested beta A $40 million 1.4 B $30 million 1.0 C $60 million 0.8 You are planning to sell the holdings of Stock B. The money from the sale will be used topurchase another $20 million of Stock A and another $10 million of Stock C. The risk-free rateis 7 percent and the market risk premium is 6.5 percent. How many percentage points higherwill the required return on the portfolio be after you complete this transaction?
- You plan to invest $1000 in a corporate bond fund or in a common stock fun. The information to the right about the annual return (per $1000) of each of these investments under different economic conditions is available, along with the probability that each of these economic conditions will occur. Complete parts (a) through (c) a. Compute the expected return for the corporate bond fund and for the common stock fund b. Compute the standard deviation for the corporate bond fund and for the common stock fund c. Would you invest in the corporate bond fund or the common stock fund? Explain.You are trying to plan your investments for the next year. You have decided that the market will either be strong (a bull market), weak (a bear market) or normal. You think that stocks, bonds, and bills will earn the following returns in these scenarios: Scenario Bull market Normal market Bear market Probability 0.20 0.55 0.25 Stock Bond Return Return 0.25 0.10 -0.15 0.06 0.04 -0.02 Bill Return 0.03 0.03 0.03 You have also decided that you have a risk-aversion (A) of 4. (a) What is the expected return for each of the securities? (b) What is the volatility of each security return? (c) What is the covariance between stock and bond returns? (d) If you combine stocks and bills as an investment, what is your op- timal combination? What is your expected return? What is your portfolio's volatility? (e) If you combine bonds and bills, what is your optimal combination? What is your expected return? What is your portfolio's volatility? (f) If you combine stocks and bonds, what is your optimal…You want to create a portfolio equally as risky as the market, and you have $500,000 to invest. Information about the possible investments is given below: Asset Investment Beta Stock A $ 147,000 .92 Stock B $ 133,000 1.37 Stock C 1.52 Risk - free asset How much will you invest in Stock C? How much will you invest in the risk - free asset? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.
- (a)Jack is considering investing in the stocks. The two stocks are available with the following particulars: Stock Return %Beta Marvel 9.60.75DC8.71.3 As measured by the return on government stock, a risk-free return in the market is 3.6%.Using capital asset pricing model, Calculate: (i) The rate of return of stock Marvel (Ii) The rate of return of stock DC (iii) Which stock should Jack invest in and why? (b) Explain the advantages and limitations of capital asset pricing model (This is subpart question nor multiple questions) so I humble request please answer I give up thumbAssume that the stock market will be decreasing for the year and you are interested in investing in one of the following stocks. The two stocks are: Stock ABC with a Beta of 1.75 Stock 123 with a Beta of -0.8 If you want to maximize the value of the investment which stock should you acquire. Please explain.1. You are trying to plan your investments for the next year. You have decided that the market will either be strong (a bull market), weak (a bear market) or normal. You think that stocks, bonds, and bills will earn the following returns in these scenarios: Scenario Bull market Normal market Bear market Probability 0.20 0.55 0.25 Stock Return 0.25 0.10 -0.15 Bond Return 0.06 0.03 0.02 Bill Return 0.03 0.03 0.03 You have also decided that you have a risk-aversion (A) of 8. (a) What is the expected return for each of the securities? (b) What is the volatility of each security return? What is the covariance between stock and bond returns? (d) If you combine stocks and bills as an investment, what is your op- timal combination? What is your expected return? What is your portfolio's volatility? (e) If you combine bonds and bills, what is your optimal combination? What is your expected return? What is your portfolio's volatility? (f) If you combine stocks and bonds, what is your optimal…