A portfolio consists of three stocks A,B and C with sharpe ratios of 1.5,2 and 2.5 respectively. Calculate the proportion of investment in stock A.
Q: Calculate the expected returns and expected standard deviations of a two-stock portfolio in which…
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A: Correlation between A and B = 0.65 Weight of A in portfolio = 50% Weight of B in portfolio = 50%…
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A: The beta of the portfolio can be calculated by calculating the weighted average beta.
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A: Working Note #1 Expected return of portfolio= Wt. of stock A * Return of stock A + Wt. of stock B *…
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A: Beta of Portfolio = Weight of stock G * Beta of Stock G + Weight of stock H * Beta of Stock H +…
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A: Standard Deviation is a measure to calculate the risk volatility of the security or portfolio. Here,…
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A: SOLUTION:- t=0 Price( P0 ) (Q0) Market Value(P0 x Q0) A $90 100 $9,000 B $50 200 $10,000 C…
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- INV 2-3a You are exploring the use of APT in making investment choices. You have identified three factors labelled F1, F2, and F3 with corresponding risk premia RP1 = 4%, RP2 = 5%, and RP3 = 2%. A stock with ticker ABC has historically shown returns which have followed the equation: rABC=0.12+.75F1+1.0F2+.5F3+eABC a. What is the equilibrium rate of return for stock ABC using the APT, if the T-bill rate is 4%?A 1 Data for Two Stocks 2 3 B C D E F G H J K 2. Use the Excel file Data for Two Stocks to determine the following: a. Using EXCEL's Data Table Feature, create a one-way data table that determines the different means and standard deviations for portfolios consisting of combinations of Stock A and Stock B by varying the correlation coefficient value between Stock A and Stock B through the full range of possible correlation coefficient values. Use increments of 0.10 for the possible correlation coefficient values. b. Graph the correlation coefficients, the means, and the standard deviations of the portfolios from the one-way data table. Be sure to include a title for the graph and label the axes. c. Use Excel's Text Box Feature to explain how the portfolio means are affected by changing the correlation coefficient values. d. Use Excel's Text Box Feature to explain how the portfolio standard deviations are affected by changing the correlation coefficient values. 4 5 Expected return A B…INV 2-3c You are exploring the use of APT in making investment choices. You have identified three factors labelled F1, F2, and F3 with corresponding risk premia RP1 = 4%, RP2 = 5%, and RP3 = 2%. A stock with ticker ABC has historically shown returns which have followed the equation: rABC=0.12+.75F1+1.0F2+.5F3+eABC c. If the expected price next year will be $56, what is the fair price today, that is, the stock price now that will not allow for arbitrage profits?
- Tiempo restante U:28:23 What is the beta of a portfolio that has $18,400 in Stock M, $6,320 in Stock N, $32,900 in Stock O and $11,850 in Stock P. Their Betas are .97, 1.04, 1.23, and .88, respectivley? O a. 1.04 O b. 1.11 О с. 1.08 O d. 1.15 O e. .99Q2 - Returns on stocks X and Y are listed below: Period 1 2 3 4 5 6 7Stock X 4% -2% 5% -1% 10% 7% 12%Stock Y -3% 7% 4% 2% 2% 8% -3% Consider a portfolio of 10% stock X and 90% stock Y. What is the mean of portfolio returns? Please specify your answer in decimal terms and round your answer to the nearest thousandth (e.g., enter 12.3 percent as 0.123).QUESTION 3 – Risk and ReturnSintok Corporation has collected information on the following three investments. Which investment is the most favourable based on the information presented?Stock A Stock B Stock CProbability Return Probability Return Probability Return0.15 2% 0.25 -3% 0.1 -5%0.4 7% 0.5 20% 0.4 10%0.3 10% 0.25 25% 0.3 15%0.15 15% 0.2 30%
- A B с E F Investment Opportunity set for stocks and bonds with varios correlation coeffients SD s SDB 19 8 E(rs) 10 Weight in stocks WS -0.1 0.0 0.1 0.2 0.3 0.4 0.6 0.8 1.0 1.1 D E(TB) 5 Portfolio expected return ws(min) = (GB^2 - OBOSP) / (Os^2 + B^2 - 2*0BÚSP) E(rp) = ws(min) *E(rs)+(1-wg(min))*E(rb) = SDp = G -1 Portfolio Standard Deviation for Given Correlation 0 0.2 0.5 H Minimum Variance Portfolio 1Marked out of 2 P Flag question Find the Risk Free Rate given the cost of equity 12%, the Expected Return on Market Portfolio is 16% and the Beta for Stock Y is 0.6. Select one: O a. 2% O b. 4% O c. None O d. 6%QUESTION 3– Risk and Return Sintok Corporation has collected information on the following three investments. Which investment is the most favourable based on the information presented? Stock A Probability 0.15 Stock B Probability 0.25 Stock C Probability 0.1 Return Return Return 2% -3% -5% 0.4 7% 0.5 20% 0.4 10% 0.3 10% 0.25 25% 0.3 15% 0.15 15% 0.2 30%
- V Quiz# 5 (Q) The following are estimates for four risk assets (A,B,C,D). The portfolio P is an equal weighted portfolio of the four risk assets. weight B Systematic Residual Total risk (S.D.) risk (S.D.) risk(S.D.) Stock A 0.25 0.8 16% 30% 34.0% Stock B 0.25 1.0 20% 35% 40.3% Stock C 0.25 1.2 24% 45% 51.0% Stock D 0.25 1.4 28% 40% 48.8% Portfolio P 1.00 Calculate systematic risk (standard deviation of systematic return) of the portfolio (%) Calculate residual risk (S.D.) of the portfolio (%) 3Calculate Pearson correlation between returns of A and B (Round to the third decimal place) 4 Explain why The CAPM is not testable (10-30words)financial advisor evaluates four stocks for inclusion in an investor's portfolio. A orrelation matrix showing each stock's correlation with the other stocks is shown below Stock ALK CMN BTY DLE ALK 0.40 0.58 1.00 -0.25 BTY 0.40 1.00 0.16 -0.04 CMN -.25 .16 1.00 .37 DLE .58 .04 .37 1.00 f the goal is to reduce the investor's overall portfolio risk, which two stocks should the advisor recommend? a. ALK and DLE b. ALK and CMN c. BTY and DLE BTY and CMQuestion 16 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 return 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 7 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 correlation with the market portfolio and a standard deviation of 55 percent? c. Suppose the risk-free rate is 4.2 percent and the market portfolio has an expected return of 10.9 percent. The market…
