Consider the following information: Probability of State of Economy 0.45 Economy Bust Rate of Return if State Occurs Stock A Stock B Stock C 0.06 0.14 0.34 0.10 0.02 -0.07 a. What is the expected return on an equally weighted portfolio of these three stocks? (Do not round intermediat Round the final answer to 2 decimal places.) Expected return 10.65% b. What is the variance of a portfolio invested 25% each in A and B and 50% in C? (Do not round intermediate calc the final answer to 6 decimal places.) Variance

Consider the following information: Probability of State of Economy 0.45 Economy Bust Rate of Return if State Occurs Stock A Stock B Stock C 0.06 0.14 0.34 0.10 0.02 -0.07 a. What is the expected return on an equally weighted portfolio of these three stocks? (Do not round intermediat Round the final answer to 2 decimal places.) Expected return 10.65% b. What is the variance of a portfolio invested 25% each in A and B and 50% in C? (Do not round intermediate calc the final answer to 6 decimal places.) Variance

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 1P

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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 %
a. Based on the following information, calculate the expected return and standard deviation for each of the following stocks. What are the covariance and correlation between the returns of the two stocks? Calculate the portfolio returm and portfolio standard deviation if you invest equally in each asset. Returns State of Economy Prob J K Recession 0.25 -0.02 0.034 Normal 0.6 0.138 0.062 Boom 0.15 0.218 0.092 b. A portfolio that combines the risk-free asset and the market portfolio has an expected return of percent and a standard deviation of 10 percent. The risk-free rate is 4 percent, and the Page 7 of 33 expected return on the market portfolio is 12 percent. Assume the capital asset pricing model holds. What expected rate of return would a security earn if it had a 45 corelation with the market portfolio and a standard deviation of 55 percent? C. Suppose the risk-free rate is 4.2 percent and the market portfolıo has an expected return of 10.9 mercent Tibemadkat normfeliobasiabiamance…
Following is the portfolio weights, w, percentage expected return in (%), R, vectors and variance-covariance matrix, VC, for a three-asset portfolio: 0.4 12 100 -45 10 w = [0.3], R = [10] and VC = [-45 64 10] 0.3 8 10 10 36 a. Calculate the expected return and standard deviation of the portfolio. b. Suppose an investor requires a target standard deviation of 4% for the portfolio; using the solver function in Excel, find the portfolio weights w to maximise the expected return subject to the constraints Op = 4 and wi + w2 + w3 = 1|
The following portfolios are being considered for investment. During the period under consideration, RFR = 0.07.Portfolio Return Beta σiA 0.15 1.0 0.05B 0.20 1.5 0.10C 0.10 0.6 0.03D 0.17 1.1 0.06Market 0.13 1.0 0.04 a. Compute the Sharpe measure for each portfolio and the market portfolio. b. Compute the Treynor measure for each portfolio and the market portfolio. c. Rank the portfolios using each measure, explaining the cause for any differences you find in the rankings.