You own a portfolio consisting of the following shares:Share12345Percentage of Portfolio20%30%15%25%10%BetaExpected Return1.0016%0.8514%1.2020%0.6012%1.6024%The risk-free rate is 3%. Also, the expected return on the market portfolio is 10.5%.(a) Calculate the expected return of your portfolio. (Hint: The expected return of aportfolio equals the weighted average of the individual shares' expected returns,where the weights are the percentage invested in each share.)(b) Calculate the portfolio beta.(c) Given the preceding information, plot the security market line on paper. Plot theshares from your portfolio on your graph.(d) From your plot in part (c), which shares appear to be your winners and whichones appear to be losers?(e) Why should you consider your conclusion in part (d) to be less than certain?

c), I'll draw the security market line (SML) and place your shares on it. The SML will display the…

Answered: You own a portfolio consisting of the…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 25P

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Suppose we have the following information: Securit Amount Invested Expected Return Beta Stock A RM1 ,OOO 8% 0.80 Stock B RM2,OOO 12% 0.95 Stock C RM3,OOO 15% 1.10 Stock D RM4,OOO 18% a) Compute the expected return on this portfolio. b) Calculate the beta of the portfolio. c) Does this portfolio have more or less systematic risk than an average asset? Explain.
You want to create a portfolio equally as risky as the market, and you have $5M to invest. Given the information below, what is your investment in the risk-free asset? Asset Stock A Stock B Stock C Risk-free Asset $0.8M $0.7M $0.9M $1.1M Investment $1M $2M Beta 0.7 1.25 1.5
Suppose you are the money manager of a P4.0 investment portfolio consists of stocks with the following investment and betas: Stock Beta S 1.5 T (0.50) A 1.25 R 0.75 If the market required return is 14% and the risk free rate is 6%,a) What is the portfolio beta?b) What is the portfolio required rate of return?
You are given the following information about a portfolio consisting of stocks X, Y, and Z: Stock Investment Expected Return X 10,000 8% Y 15,000 12% 25,000 16% Calculate the expected return of the portfolio.
Consider an investment portfolio that consists of three different stocks, with the amount invested in each asset shownbelow. Assume the risk-free rate is 2.5% and the market risk premium is 6%. Use this information to answer thefollowing questions.Stock Weights BetasChesapeake Energy 25% 0.8Sodastream 50% 1.3Pentair 25% 1.0a) Compute the expected return for each stock using the CAPM and assuming that the stocks are all fairly priced.b) Compute the portfolio beta and the expected return on the portfolio.c) Now assume that the portfolio only includes 50% invested in Pentair and 50% invested in Sodastream (i.e., a twoassetportfolio). The yearly-return standard deviation of Pentair is 48% and the yearly-return standard deviation ofSodastream is 60%. The correlation coefficent between Pentair’s returns and Sodastream’s returns is 0.3 What is theexpected yearly-return standard deviation for this portfolio?
Find the Risk-Free Rate given the Expected Return on Stock Y is 20 %, the Expected Return on Market Portfolio is 24 % and Beta for Stock Y is 0.8. Select one: O a. 5% O b. None O c. 6% O d. 4% O e. 7%
Assume that the risk-free rate of return is 4% and the market risk premium (i.e., Rm - Rf) is 8%. If use the Capital Asset Pricing Model (CAPM) to estimate the expected rate of return on a stock with a beta of 1.28, then this stock's expected return should be -- A) 10.53% B) 14.24% 23.15% 6.59%
A share has a beta of 1.04, an expected return of 12.42%, and lies on the security market line. A risk-free asset is yielding 2.4%. You want to create a $2000 portfolio consisting of Share A and the risk-free security such that the portfolio beta is 0.84. What rate of return should you expect to earn on your portfolio? Select one: a. 10.33% b. 11.50% c. 11.16% d. 10.25% e. 10.49%
Assume that the risk-free rate of return is 4% and the market risk premium (i.e., Rm - R;) is 8%. If use the Capital Asset Pricing Model (CAPM) to estimate the expected rate of return on a stock with a beta of 1.28, then this stock's expected return should be A) 10.53% B) 14.24% 23.15% 6.59%
For an investment in a stock, the probability of the return being -10.0% is 0.3, 10.0% is 0.4, and 30.0% is 0.3. Given the probability distributions, what is the expected rate of return for the investment?Choices:A. 10.00%B. 9.50%C. 15.00%D. 12.50%E. 13.00%
cisting of the following stocks below: Mytab PERCENTAGE OF PORTFOLIO STOCK OR SECURITY BETA EXPECTED RETURN 1 15% 1.05 11% 2. 25% 0.75 7% 3 20% 1.15 13% 30% 0.75 9% 10% 1.80 18% The risk-free rate is 4 percent. Also, the expected return on the market portfolio is 12 percent. a. Calculate the expected return of the portfolio. (Hint: The expected return of a portfolio equals the weighted average of the individual stocks' expected returns, where the weights are the percentage invested in each stock.) b. Calculate the portfolio beta. c. Given the foregoing information, plot the security market line on paper. the stocks from the portfolio on your graph. d. From the plot in part (c), which stocks appear to be winners and which ones appear to be losers? e. Why should Stanislas consider the conclusion in part (d) to be less than certain? Plot
Consider the following simplified APT model: Factor Expected Risk Premium Market 6.4% Interest Rate -0.6% Yield Spread 5.1% Factor Risk Exposures Market Interest Rate Yield Spread Stock Stock (b1) (b2) (b3) P 1.0 -2.0 -0.2 P2 1.2 0 0.3 P3 0.3 0.5 1.0 a) Calculate the expected return for the above stocks. Assume risk free rate is 5%. Consider a portfolio with equal…

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