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- 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"8. (Portfolio of two stocks) The following spreadsheet presents data for stocks A and B. A B C 1 2 RETURN STATISTICS OF STOCKS A AND B Stock A Stock B 3 Average return 15% 10% 4 Variance 0.12 0.07 5 Standard deviation 34.64% 26.46% 6 7 Covariance of return, Cov(AIB) 0.0160 0.1746 <=B7/(B5*C5) a. 8 Correlation of return What are the return and the standard deviation of a portfolio com- posed of 30% of stock A and 70% of stock B? b. What are the return and the standard deviation of an equally weighted portfolio of stocks A and B?Suppose the expected returns and standard deviations of Stocks A and B are E(RA) = .092, E(RB) = 152, đA = .362, and Og = .622. %3D Calculate the expected return of a portfolio that is composed of 37 percent A and 63 percent B when the correlation between the returns on A and B is .52. (Do not a-1. round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Calculate the standard deviation of a portfolio that is composed of 37 percent A and 63 percent B when the correlation coefficient between the returns on A and B is .52. а-2. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Calculate the standard deviation of a portfolio with the same portfolio weights as in h part (a) when the correlation coefficient between the returns on A and B is -.52. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a-1.…
- 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?QG. The following information is available about the stocks of two companies A and B: Stock A Stock B Expected Return (%) Probability -5 12 15 20 0.05 0.55 0.35 0.05 Expected Return (%) Probability 5 15 18 20 0.05 0.65 0.20 0.10 Stock Standard Deviation of Returns (%) A B 25 35 The coefficient of correlation between the returns on A and B is 0.05. A portfolio is constructed by allocating the funds between A and B in the ratio of 2:3. Calculate the expected return on the portfolio. b. Calculate the portfolio risk.1. Consider 3 stocks A, B, and C and the risk-free rate RF=0.5%. The logarithmic rates of return are as follows: 1 4 8. RA1(%) RB,(%) Rc.(%) -2 2 7 9 3. 7 4. 8. 3. -1 -5 a) Compute the mean returns the holding returns for the entire period. b) Determine the risk of each stock. c) Measure the correlation between A and B, A and C, and B and C. d) Compute the expected return and risk for the following portfolios: •P1:40% from the budget was invested in A and the rest of the money in B • P2: XA-40%, xc=60% • P3: XA-30%, Xg=30%, xC-40% P4: Xp3-70%, xRF=30%
- A3) Finance What is the expected standard deviation of stock A's returns based on the information presented in the table? Outcome Probability of outcome Stock A return in outcome : Good 16% 65.00% Medium 51% 17.00% Bad "?" -35.00%Consider the following simplified APT model: Factor Expected Risk Premium Market 6.4% Interest Rate -0.6% Yield Spread 5.1% Factor Risk Exposures Market Interest Rate Yield Spread Stock Stock(b1) (b2) (b3) P 1.0 -2.0 -0.2 P2 1.2 0 0.3 P3 0.3 0.5 1.0 Required: 1. Calculate the expected return for the above stocks. Assume risk free rate is 5%. Consider a portfolio with equal investments in stocks P, P2 and P3 2.What are the factor risk exposures for the portfolio? 3.What is the portfolio’s expected return?1. If a stock has a(Alpha)=0.002, b(Beta)=1.4, Using the market model (eq. 7.4), find the expected percent return for the above stock if the market return is expected to be 2% and the risk free rate is 1%. 2. Assume stock prices follow a random walk and a particular stock has had the following recent stock prices: Day 1: 129.5 Day 2: 126.9 Day 3: 127.1 what is the best estimate of day 4 prices?
- A stock will provide a rate of return of either -18% or 26%. If both possibilities are equally likely, calculate the stock's expected return and standard deviation. (Do not round intermediate calculations. Enter your answers as a whole percent.) Expected return % % Standard deviation ces < Prev 5 of 5 Next a here to searchS Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 3.6% + 1.20RM + eA RB = -1.6% + 1.5RM + eB OM = 16%; R-squareд = 0.25; R-squareg = 0.15 What is the standard deviation of each stock? Note: Do not round intermediate calculations. Round your answers to 2 decimal places. Stock A Stock B Standard Deviation % %5. Consider the following information about two stocks (D and E) and two common risk factors (1 and 2): Stock Ba Biz E(R₁) 13.1% D 1.2 3.4 E 2.6 2.6 15.4% a. Assuming that the risk-free rate is 5%, calculate the levels of the factor risk-premium that are consistent with the reported values for the factor betas and the expected returns for the two stocks. b. You expect that in one year the prices of for D and E will be $55 and $36. Neither stock is expected to pay a dividend over the next year. What should the price of each stock be today to be consistent with the expected return levels in the table above? c. Suppose that the risk-premium for Factor 1 that you calculated at point a) suddenly increases by 0.25%, i.c., from x% to (x+0.25)%, where x is the value established at a). What are the new expected returns for D and E? d. If the increase in the Factor 1 risk-premium in c) does not cause a change in opinion about what the stock prices will be in one year, how will the current prices…
