a. Based on the following information, calculate the expected return and standard deviation foreach of the following stocks. What are the covariance and correlation between the returns ofthe two stocks? Calculate the portfolio return and portfolio standard deviation if you investequally in each asset.ReturnsState of EconomyProbKRecession0.25-0.020.034Normal0.60.1380.062Boom0.150.2180.092b. A portfolio that combines the risk-free asset and the market portfolio has an expected return of7 percent and a standard deviation of 10 percent. The risk-free rate is 4 percent, and theexpected return on the market portfolio is 12 percent. Assume the capital asset pricing modelholds. What expected rate of return would a security earn if it had a .45 correlation with themarket 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 10.9percent. The market portfolio has a variance of .0382. Portfolio Z has a correlation coefficientwith the market of .28 and a variance of 3285. According to the capital asset pricing model,what is the expected return on Portfolio Z?

Expected return refers to the amount of returns on estimated or probability basis for the future…

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 retum and portfolio standard deviation if you invest equally in each asset. a. Returns State of Economy Prob K Recession 0.25 -0.02 0.034 Normal 0.6 0.138 0.062 Boom 0.15 0.218 0.092

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 retum and portfolio standard deviation if you invest equally in each asset. a. Returns State of Economy Prob K Recession 0.25 -0.02 0.034 Normal 0.6 0.138 0.062 Boom 0.15 0.218 0.092

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter6: Risk And Return

Section: Chapter Questions

Problem 1Q

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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…
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