A portfolio is equally invested in 4 assets: Alphabet (Google) stock with a beta of 1.05, Macy's stock with a beta of 1.51, American Airlines stock with a beta of 2.04 and the risk-free asset. The portfolio beta is and this portfolio is expected to do well during a 1) 1.53; boom 2) 1.53; recession 3) 1.15; boom O4) 1.15: recession

A portfolio is equally invested in 4 assets: Alphabet (Google) stock with a beta of 1.05, Macy's stock with a beta of 1.51, American Airlines stock with a beta of 2.04 and the risk-free asset. The portfolio beta is and this portfolio is expected to do well during a 1) 1.53; boom 2) 1.53; recession 3) 1.15; boom O4) 1.15: recession

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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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.
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 have portfolio of four stocks Stock A, B, C and D, Total investment in these stocks is equal to 2019331015 $, Beta of these stocks is 1.5, (0.5), 1.25, and 0.75 and proportion invested is 22%, 20%, 30%, and remaining in D. If the Risk free rate is 6% and market rate of return is 15%. Calculate a) Investment in each stock. b) Market premium c) Required Rate of return for each stock. d) Required rate of return of Portfolio. e) If expected rate of return of stock A is 10%, what do you think if it is overvalued or undervalued.
An investor holds a portfolio of stocks and is considering investing in the DBB Company. The firm’s prospects look neutral, and you estimate the following probability distribution of possible returns: Conditions P Returns on DBB Returns on DVI Recession 0.12 -33% -12% Below Average 0.15 -18% 7% Average 0.46 12% 11% Above Average 0.15 25% 23% Boom 0.12 37% 25% a) How much isthe expected return for DBB? b) How much isthe coefficient of variation for DBB? c) Now let’s say you want to add another asset, DVI, to your portfolio. You sell 35% of DBB to purchase DVI. How much is your expected return for this portfolio? d) How much isthe coefficient of variation for the new portfolio?
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
You are currently considering in investing Rs.1.2 million in equity investment portfolio. Your analysis reveals that equity stock of the following three companies are suitable options for your investment. Company P R Expected retum (%) Standard deviation (%) Correlation coefficient; 25 22 20 30 26 24 PQ QR -0.5 +0.4 PR +0.6 You are required to; (a) Calculate the expected returm of the portfolio if Rs.1.2 million is equally invested in the stocks of all three companies.
Imagine you wish to estimate the betas for two investments, A and B. You have gathered the following return data for the market and for each of the investments over the past 10 years, 2010-2019 2019 Year 2010 2011 2012 2013 2014 2015 2016 2017 2018 12% Market returns 2% 13% -7% 1% 9% 10% 21% -10% 4% 10% Stock A returns 5% 10% -2% 0% 5% 12% 15% -9% 1% 15% Stock B returns 7% 9% 3% -2% 11% 9% 10% -11% 2% a. On a set of market return (x-axis)-investment return (y-axis) axes, use the data to draw the characteristic lines for investments A and B on the same graph. b. Use the characteristic lines from part a to estimate the betas for investments A and B. c. Use the betas found in part b to comment on the relative risks of investments A and B
You have a portfolio that is invested 23 percent in Stock A, 36 percent in Stock B, 41 percent in Stock C, and the remainder in a risk free asset. The betas of the stocks are.68, 1.23.and 1.52, respectively. What is the beta of the portfolio? O1.10 1.14 O1.22 O118 O1.38
You decide to invest in a portfolio consisting of 30 percent Stock A, 30 percent Stock B, and the remainder in Stock C. Based on the following information, what is the expected return of your portfolio? State of Economy Probability of Return if State Occurs State Economy Stock A Stock B Boom .17 -18.8% -3.9% Normal 18 .45 10.2% 8.5% Recession .38 28.6% 15.8% Stock C -22.8% 17.1% 31.7%
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?
4. Jamie Wong is thinking of building an investment portfolio containing two stocks, L and M. Stock L will represent 44% of the dollar value of the portfolio, and stock M will account for the other 56%. The historical returns over the last 6 years, 2013-2018, for each of these stocks are shown in the following table 4. a. Calculate the actual portfolio return, r,, for each of the 6 years. b. Calculate the average return for each stock and for the portfolio over the 6-year period. c. Calculate the standard deviation of returns for each asset and for the portfolio. How does the portfolio standard deviation compare to the standard deviations of the individual assets? d. How would you characterize the correlation of returns of the two stocks L and M? e. Discuss any benefits of diversification achieved by Jamie through creation of the portfolio. Review Only Click on the icon to see the Worked Solution. a. The average portfolio return for 2013 is %. (Enter as a percentage and round to one…
You decide to form a portfolio of the following amounts invested in the following stocks. What is the beta of the portfolio? Stock Amount Beta Expected Return Apple $8,000 2.40 10.50% Microsoft $6,000 0.73 16.90% Ford $4,000 1.95 15.75% Time $2,000 1.27 11.80% Warner 1.43 1.88 1.70 1.59 1.05 Only typing answer Please answer explaining in detail step by step without table and graph thankyou

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