Consider the following information:State ofProbability ofRate of Return if State OccursEconomy State of EconomyStock AStock BStock CBoom.19.366.466.346Good.41.136.116.186PoorBust.31.09.026-.126036-.266-.091-.106a. Your portfolio is invested 31 percent each in A and C and 38 percent in B. What is the expected return of the portfolio?Note: 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 this portfolio?Note: Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161.c. What is the standard deviation of this portfolio?Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.a. Expected returnb. Variancec. Standard deviation%I1%

Expected Return:We want to find the average return we can expect from this portfolio considering the…

Answered: Consider the following information:…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation (SDi), covariance (COVij), and asset weight (Wi) are as shown below? Asset (A) E(R₂) = 10% SDA = 8% WA = 0.25 COVAB = 0.006 Select one: A. 13.75% B. 7.72% C. 12.5% D. 8.79% Asset (B) E(RB) = 15% SDB = 9.5% WB = 0.75
Consider the following information: Rate of Return if State Occurs Probability of State- State of Economy of Economy Stock A Stock B Stock C Boom .15 .31 .41 .21 Good .60 .16 .12 .10 Poor .20 -.03 -.06 -.04 Bust .05 -.11 -.16 -.08 a. Your portfolio is invested 30 percent each in A and C, and 40 percent in B. What is the expected return of the portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b-1. What is the variance of this portfolio? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161.) b-2. What is the standard deviation? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Consider the following information: Rate of Return if State Occurs State of Economy Probability of State of Economy Stock A Stock B Stock C Boom .15 .35 .45 .27 Good .55 .16 .10 .08 Poor .25 -.01 -.06 -.04 Bust .05 -.12 -.20 -.09 a) Your portfolio is invested 40 percent each in A and C, and 20 percent in B. What is the expected return of the portfolio? b) What is the variance of this portfolio? The standard deviation? Stock C .45 .27 .10 .08 -.06 -.04 -.20 -.09
Consider the following information: Rate of Return if State Occurs Probability of State State of Economy of Economy Stock A Stock B Stock C Boom .20 .35 .45 .25 Good .45 .20 .16 .09 Poor .25 -.02 -.05 -.03 Bust .10 -.16 -.20 -.12 a. Your portfolio is invested 24 percent each in A and C, and 52 percent in B. What is the expected return of the portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b-1. What is the variance of this portfolio? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161.) b-2. What is the standard deviation? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Expected return b-1. Variance b-2. Standard deviation % %
Consider the following information about the various states of economy and the returns ofvarious investment alternatives for each scenario. Answer the questions that follow.% Return on T-Bills, Stocks and MarketIndexState of the Economy Probability TBills Phillips PayupRubbermadeMarketIndexRecession 0.2 7 -22 28 10 -13Below Average 0.1 7 -2 14.7 -10 1Average 0.3 7 20 0 7 15Above Average 0.3 7 35 -10 45 29Boom 0.1 7 50 -20 30 43MeanStandard DeviationCoefficient of VariationCovariance with MPCorrelation with Market IndexBetaCAPM Req. ReturnValuation(Overvalued/Undervalued/FairlyValued)Nature of stock(Aggressive/Defensive)Question 1 Fill the parts in the above table that are shaded in yellow. You will notice that there are nineline items. Question 2 Using the data generated in the previous question (Question 1);a) Plot the Security Market Line (SML) b) Superimpose the CAPM’s required return on the SML c) Indicate which investments will plot on, above and below the SML? d) If an…
Consider the following information about the various states of economy and the returns ofvarious investment alternatives for each scenario. Answer the questions that follow.% Return on T-Bills, Stocks and MarketIndexState of the Economy Probability TBills Phillips PayupRubbermadeMarketIndexRecession 0.2 7 -22 28 10 -13Below Average 0.1 7 -2 14.7 -10 1Average 0.3 7 20 0 7 15Above Average 0.3 7 35 -10 45 29Boom 0.1 7 50 -20 30 43MeanStandard DeviationCoefficient of VariationCovariance with MPCorrelation with Market IndexBetaCAPM Req. ReturnValuation(Overvalued/Undervalued/FairlyValued)Nature of stock(Aggressive/Defensive)Question 1 Fill the parts in the above table that are shaded in yellow. You will notice that there are nineline items. Each line item is worth 2 marksQuestion 2 Using the data generated in the previous question (Question 1);a) Plot the Security Market Line (SML) b) Superimpose the CAPM’s required return on the SML c) Indicate which investments will plot on, above and…
Consider the following performance data for a portfolio manager: Benchmark Portfolio Index Portfolio Weight Weight Return Return Stocks 0.65 0.7 0.11 0.12 Bonds 0.3 0.25 0.07 0.08 Cash 0.05 0.05 0.03 0.025 a.Calculate the percentage return that can be attributed to the asset allocation decision. b.Calculate the percentage return that can be attributed to the security selection decision.
The following portfolios are being considered for investment. During the period under consideration, RFR =0.07 Porfolio Return Beta P 0.15 1.00 0.05 Q 0.20 1.50 0.1 R 0.10 0.60 0.03 S 0.17 1.10 0.06 Market 0.13 1.00 0.04 Compute the Sharpe measure for each portfolio and the market portfolio Compute the Treynor measure for each portfolio and the market portfolio Rank the portfolios using each measure explaining the cause for any differences you find in the rankings.
Portfolio Management A particular firm’s portfolio is composed of two assets, which we will call" A" and "B." Let X denote the annual rate of return from asset A, and let Y denote the annual rate of return from asset B. Suppose that E(X) = 0.15, E(Y) = 0.20, SD (X) = 0.05, SD (Y) = 0.06, and CORR (X, Y) = 0.30. (a) What is the expected return of investing 50% of the portfolio in asset A and 50% of the portfolio in asset B? What is the variance of this return? (b) Replace CORR (X, Y) = 0.30 by CORR (X, Y) = 0.60, 0, -0.30, and -0.60 and answer the questions in part (a). What is the impact of correlation on the expected returns and its variance? Explain why this is so. (c) Suppose that the fraction of the portfolio that is invested in asset B is f, and so the fraction of the portfolio that is invested in asset A is (1 – f). Let f vary from f = 0.0 to f = 1.0 in increments of 5% (that is, f = 0.0, 0.05, 0.10, 0.15, ...), and compute the mean and the variance of the annual rate of…
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.
Consider the following information for four portfolios, the market, and the risk-free rate (RFR): Portfolio Return Beta SD A1 0.15 1.25 0.182 A2 0.1 0.9 0.223 A3 0.12 1.1 0.138 A4 0.08 0.8 0.125 Market 0.11 1 0.2 RFR 0.03 0 0 Refer to Exhibit 18.6. Calculate the Jensen alpha Measure for each portfolio. a. A1 = 0.014, A2 = -0.002, A3 = 0.002, A4 = -0.02 b. A1 = 0.002, A2 = -0.02, A3 = 0.002, A4 = -0.014 c. A1 = 0.02, A2 = -0.002, A3 = 0.002, A4 = -0.014 d. A1 = 0.03, A2 = -0.002, A3 = 0.02, A4 = -0.14 e. A1 = 0.02, A2 = -0.002, A3 = 0.02, A4 = -0.14
Consider a single-index model economy. The index portfolio M has E(RM ) = 6%, σM = 18%.An individual asset i has an estimate of βi = 1.1 and σ2ei = 0.0225 using the single index modelRi = αi + βiRM + ei. The forecast of asset i’s return is E(ri) = 12%. rf = 4%. a) According to asset i’s return forecast, calculate αi. (b) Calculate the optimal weight of combining asset i and the index portfolio M . (c) Calculate the Sharpe ratio of the index portfolio M and the portfolio optimally combiningasset i and the index portfolio M .

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