Consider the following information for stocks A, B, and C. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.) Stock Expected Return Standard Deviation Beta A 9.45%   16%   0.9 B 11.10      16      1.2 C 12.75      16      1.5 Fund P has one-third of its funds invested in each of the three stocks. The risk-free rate is 4.5%, and the market is in equilibrium. (That is, required returns equal expected returns.) What is the market risk premium (rM - rRF)? Round your answer to one decimal place.   %

Suppose that a mutual fund manager has a $20 million portfolio with a beta of 1.2. Also suppose that the risk free rate is 4.5% and the market risk premium is 6%. The manager expects to receive an additional $5 million, which is to be invested in a number of new stocks to add to the portfolio. After these stocks are added, the manager would like the fund's required rate of return to be 10.5%. For notation, let r represent the required return, let RF represent the risk free rate, let b represent the beta of a group of stocks, and T'm represent the market return. According to the video, which equation most closely describes the security market line (SML)? Or=TRF-bx (TM - TRF) Ⓒr=TRF+b× (™M - TRF) b ○ r = TRF + TM-TRF Or=rRF+bx (M+TRF) Hint: Recall that the manager wants the new required rate of return for the portfolio to remain at 10.5%. Using the equation you just identified, and plugging in the relevant information, yields a beta of the portfolio, after the new stocks have been added,…

Consider the following information for stocks A, B, and C. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.) Stock Expected Return Standard Deviation Beta A 6.95%   15%   0.7 B 8.35      15      1.1 C 10.45      15      1.7 Fund P has one-third of its funds invested in each of the three stocks. The risk-free rate is 4.5%, and the market is in equilibrium. (That is, required returns equal expected returns.) What is the market risk premium (rM - rRF)? Round your answer to one decimal place.   % What is the beta of Fund P? Do not round intermediate calculations. Round your answer to two decimal places.   What is the required return of Fund P? Do not round intermediate calculations. Round your answer to two decimal places.   % What would you expect the standard deviation of Fund P to be?   Less than 15% Greater than 15% Equal to 15%

Use the following data to answer the question regarding the performance of Guardian Stock Fund and the market portfolio. The risk-free return during the sample period was 4%.     Guardian Market Portfolio Average return   14 %   10 % Standard deviation of returns   27 %   21 % Beta   1.5     1   Residual standard deviation   4 %   0 %     Calculate the information ratio measure of performance for Guardian Stock Fund. (Round your answer to 2 decimal places. Do not round intermediate calculations.)

Use the following data to answer the question regarding the performance of Guardian Stock Fund and the market portfolio. The risk- free return during the sample period was 5%. Average return Standard deviation of returns Beta Residual standard deviation Guardian 14% 26% 1.2 0.60 X 4% Calculate the information ratio measure of performance for Guardian Stock Fund. (Round your answer to 2 decimal places. Do not round intermediate calculations.) Answer is complete but not entirely correct. Information ratio Market Portfolio 10% 21% 1 0%

Use the following data to answer the question regarding the performance of Guardian Stock Fund and the market portfolio. The risk- free return during the sample period was 5%. Average return Standard deviation of returns Beta Residual standard deviation Guardian 14% 26% 1.2 (0.80) 4% X Answer is complete but not entirely correct. Information ratio Market Portfolio Calculate the information ratio measure of performance for Guardian Stock Fund. (Round your answer to 2 decimal places. Do not round intermediate calculations.) 10% 21% 1 0%

Stock Y has a beta of 0.9 and an expected return of 9.46 percent. Stock Z has a beta of 2.1 and an expected return of 15.59 percent. What would the risk-free rate (in percent) have to be for the two stocks to be correctly priced relative to each other? Answer to two decimals.

Stock Y has a beta of 1.4 and an expected return of 15.1 percent. Stock Z has a beta of .7 and an expected return of 8.6 percent. If the risk-free rate is 5 percent and the market risk premium is 6.5 percent, the reward-to-risk ratios for Stocks Y and Z are the SML reward-to-risk is percent, Stock Y is and percent, respectively. Since and Stock Z is (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Now it's time for you to practice what you've learned. Consider the following information for Stocks A, B, and C. The returns on the three stocks, while positively correlated, are not perfectly correlated. The risk-free rate is 3.50%. Stock Expected Return A B C 8.30% 10.70% 13.10% Standard Deviation Beta 1.2 20% 20% 20% The beta for Fund P is approximately 1.8 2.4 Let 7; be the expected return of stock i, TRP represent the risk-free rate, b represent the Beta of a stock, and TM represent the market return. Using SML equation, you can solve for the market risk premium which, in this case, equals approximately Consider Fund P, which has one third of its funds invested in each of stock A, B, and C. You have the market risk premium, the beta for Fund P, and the risk-free rate. Hint: Recall that because the market is in equilibrium, the required rate of return is equal to the expected rate of return for each stock. This information implies that the required rate of return for Fund P is…

2. Consider the following expected returns, volatilities, and correlations: Expected Standard Stock Return Deviation Correlation with Vital Correlation with Mital Correlation with Pital Vital 14% 6% 1.0 -1.0 0.0 Mital 44% 24% -1.0 1.0 0.7 Pital 23% 14% 0.0 0.7 1.0 a. Imagine a portfolio comprising solely of Vital and Mital. What portion of should be allocated to Vital stock to ensure a risk-free investment? your investment b. What is the portfolio's volatility when holding a $10,000 long position in Pital and a $2000 short position in Mital? wwwww c. In a market, there are two securities, Artis and Brotis. Currently, the price of Artis stands at £50. Looking ahead, the price of Artis next year will be £40 during a recession, £55 in normal economic times, and £60 in an expanding economy. The probabilities associated with recession, normal times, and expansion are 0.1, 0.8, and 0.1, respectively. Artis does not pay dividends and has a correlation of 0.8 with the market. On the other…