Don't use Excel 1nYou are planning to invest $1,000,000. Two securities are available, A and B, and you can invest in either ofthem or in a portfolio with some of each. You estimate that the following probability distributions of returnsare applicable for A and B:Stock AReturn1218ProbabilitySelect one:O a. 72%O b. 25.7%O c. 12.8%O d. 39%O e. 42.5%6040Stock BReturn1406Probability1090Find the weight percentage invested in stock A (i.e. WA) that produces the minimum risk portfolio, assume thatthe coefficient of correlation between stocks A and B i.e. PAB = -0.5. Assume that both standard deviations ofstocks A and B are 12.8% and 25.7% respectively.

As the correlation coefficient is negative i.e. -0.5, the weight percentage of A that gives minimum…

You are planning to invest $1,000,000. Two securities are available, A and B, and you can invest in either of them or in a portfolio with some of each. You estimate that the following probability distributions of returns are applicable for A and B: Stock A Return 12 18 Probability 60 40 Stock B Return 14 06 Probability 10 90

You are planning to invest $1,000,000. Two securities are available, A and B, and you can invest in either of them or in a portfolio with some of each. You estimate that the following probability distributions of returns are applicable for A and B: Stock A Return 12 18 Probability 60 40 Stock B Return 14 06 Probability 10 90

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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Following are the probability distribution of returns of portfolio of Stock A and Stock B in equal proportion of weight in each state of economy. You are required to calculate Expected Return and Risk for individual Stocks? State of Economy 1 2 3 4 5 Probability 0.2 0.2 0.2 0.2 0.2 Return on Stock A (%) 15 (5) 5 35 25 Return on Stock B (%) (5) 15 25 5 35 If you deposit Rs. 1,000 in the bank at a nominal interest rate of 6 percent, you will have Rs. 1,060 at the end of the year. Suppose that the inflation rate during the year is also 6 percent. Find real amount in Peso?
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?
You own a portfolio that has $3,00o0 invested in Stock A and $4,100 invested in Stock B. Assume the expected returns on these stocks are 10 percent and 16 percent, respectively. What is the expected return on the portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Expected return %
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%
Assume you have invested in two other stocks: Stock A has a beta of 1.20 and Stock B has a beta of 0.8. Rf= 2% and Rm = 12%. (i) Using CAPM, what are the expected returns for each stock? Return of stock = Risk free rate + beta ( market rate of return - risk free rate of return) Return of Stock A = 2% + 1.20 (12% - 2%) = 2.12% Return of Stock B = 2% + 0.80 (12% - 2%) = 2.08% (ii) What is the expected return of an equally weighted portfolio of these two stocks? Weight of stock A = 0.50 Weight of Stock B = 0.50 Expected return = (Return of Stock A * weight of Stock A) + (Return of Stock B * weight of stock B) = (2.12 * 0.50) + (2.08*0.50) = 1.06 + 1.04 = 3% (iii) What is the beta of an equally weighted portfolio of these two stocks? Beta of portfolio = (Beta of Stock A * weight of stock A) + (Beta of Stock B * weight of Stock B) = (1.20*0.50) + (0.80*0.50) = 0.60 + 0.40 = 1 Beta of portfolio = 1 (iv) Sketchthe SML to…
Consider information given in the table below and answers the question asked thereafter: State Probability return on stock A Return on stock B A 0.15 10% 9% B 0.15 6% 15% C 0.10 20% 10% D 0.18 5% -8% E 0.12 -10% 20% F 0.30 8% 5% i. Calculate expected return on each stock? On the basis of this measure, which stockyou will choose?ii. Calculate standard deviation of the returns on each stock? On the basis of thismeasure, which stock you will choose?iii. Calculate coefficient of variance of the returns on each stock? On the basis of thismeasure, which stock you will choose?
a. Calculate both the arithmetic and the geometric average return of the following investment;Year 1 2 3 4Return 10.5% 12.2% -5.5% 2.8%(4 marks)b. Teena is considering investing in Stock A and stock B. She plans to invest $ 25,000 in the low riskstock and $ 50,000 in the high-risk stock. You have been given the following information about thesetwo stocks in the table below:Stock A BE(R) 15% 10? 25% 22%Correlation between A and B 0.20Based on the given information above, you are required to:i. Calculate the portfolio weightsii. Calculate the portfolio return.iii. Calculate the portfolio risk.iv. Compare portfolio risk with the individual stock risks and identify the benefit of thediversification of the portfolio.
Assume you have invested in two other stocks: Stock A has a beta of 1.20 and Stock B has a beta of 0.8. Rf= 2% and Rm = 12%. Using CAPM, what are the expected returns for each stock? Return of stock = Risk free rate + beta ( market rate of return - risk free rate of return) Return of Stock A = 2% + 1.20 (12% - 2%) = 2.12% Return of Stock B = 2% + 0.80 (12% - 2%) = 2.08% What is the expected return of an equally weighted portfolio of these two stocks? Weight of stock A = 0.50 Weight of Stock B = 0.50 Expected return = (Return of Stock A * weight of Stock A) + (Return of Stock B * weight of stock B) = (2.12 * 0.50) + (2.08*0.50) = 1.06 + 1.04 = 3% What is the beta of an equally weighted portfolio of these two stocks? Beta of portfolio = (Beta of Stock A * weight of stock A) + (Beta of Stock B * weight of Stock B) = (1.20*0.50) + (0.80*0.50) = 0.60 + 0.40 = 1 Beta of portfolio = 1 (iv) Sketch the SML to represent the…
You have $19,256 to invest in a stock portfolio. Your choices are Stock X with an expected return of 13.08 percent and Stock Y with an expected return of 10.37 percent. If your goal is to create a portfolio with an expected return of 12.06 percent, how much money (in $) will you invest in Stock X? Answer to two decimals, carry intermediate calcs. to four decimals.
Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free rate, r4. The characteristics of two of the stocks are as follows: Correlation= Rate of return Stock Expected Return 7% 14% Required: a. Calculate the expected rate of return on this risk-free portfolio? (Hint: Can a particular stock portfolio be formed to create a "synthetic" risk-free asset?) (Round your answer to 2 decimal places.) O Yes O No Standard Deviation 30% 70% b. Could the equilibrium rybe greater than rate of return?
Qn4: Assume a two-stock portfolio created with $50,000 is invested in both HT and Collections. The expected returns are given below: Calculate the portfolio's return for each state of economy and fill them in the last column, under "Portfolio" (Hint: The portfolio's expected return is a weighted average of the returns of the portfolio's component assets). Calculate the portfolio's expected return (Hint: You have to incorporate the probability distribution of each state of economy). Calculate the portfolio's standard deviation. Economy Recession Below average Average Above average Boom Prob. HT 0.1 -27.0% 0.2 -7.0% 0.4 15.0% 0.2 30.0% 0.1 45.0% Coll 27.0% 13.0% 0.0% -11.0% -21.0% Portfolio
Suppose you are given the following information about 2 stocks, what is the expected return of a portfolio weighted 55% in stock A and 45% in stock B? E(RA)=16% E(RB)=8% σA=22% σB=12% σA,B=−0.003696 Enter rate in decimal form, rounded to 4th digit, as in "0.1234"

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