Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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You put half of your money in a stock portfolio that has an expected return of 14% and a standard deviation of 24%. You put the rest of your money in a risky bond portfolio that has an expected return of 6% and a standard deviation of 12%. The stock and bond portfolios have a correlation of .55 and TB or Rf is 2%. What is the SR of the resulting portfolio?
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- The two stocks in your portfolio, X and Y, have independent returns, so the correlation between them, rXY is zero. Your portfolio consists of $50,000 invested in Stock X and $50,000 invested in Stock Y. Both stocks have an expected return of 15%, betas of 1.6, and standard deviations of 30%. Which of the following statements best describes the characteristics of your 2-stock portfolio? a. Your portfolio has a standard deviation less than 30%, and its beta is greater than 1.6. b. Your portfolio has a beta equal to 1.6, and its expected return is 15%. c. Your portfolio has a beta greater than 1.6, and its expected return is greater than 15%. d. Your portfolio has a standard deviation greater than 30% and a beta equal to 1.6. e. Your portfolio has a standard deviation of 30%, and its expected return is 15%.arrow_forwardthe CAPM world, the average investor’s risk aversion parameter is 2 and the standard deviation of the market portfolio is 23%. The risk-free rate is 3.5%. What is the expected return on the market portfolio?arrow_forwardYou put half of your money in a stock that has an expected return of 14% and a standard deviation of 24%. You put the rest of your money in another stock that has an expected return of 6% and a standard deviation of 12%. The two stocks have a correlation of 0.55. What is the standard deviation of the resulting portfolio?arrow_forward
- An investor aims to build a portfolio with annual return equal to 8.88%. In the market only two stocks (A and B) are available, with annual historical returns equal to 9.6% and 7.8% respectively. Assume future returns have the same distribution of past returns. What is the percentage of funds that the investor must allocate to the stock A and B?arrow_forwardYou are creating a portfolio of two stocks. The first one has a standard deviation of 18.6% and the second one has a standard deviation of 17.1%. The correlation coefficient between the returns of the two is -0.13. You will invest 36% of the portfolio in the first stock and the rest in the second stock. What will be the standard deviation of this portfolio's returns? Answer in percent, rounded to one decimal place (e.g., 4.32% = 4.3).arrow_forward1. A stock has a beta of 1.15 and an expected return of 14 percent. A risk-free asset Currently earns 4.2 percent. a . What is expected return on a portfolio that is equally in inverted assets? b. if portfolio of the two assets has beta of 75, what are the portfolio weights? C. if a portfolio of the two assets has an expected return of 8 percent .what is its beta? the twoarrow_forward
- An investor is forming a portfolio by investing $50,000 in stock A which has a beta of 2.40, and $50,000 in stock B which has a beta of 0.60. The return on the market is equal to 8% and treasure bonds have a yield of 3% (rRF). What’s the portfolio beta? 0.60 1.30 1.50 1.80 Using the information in Question 41, calculate the required rate of return on the investor’s portfolio 11.0% 15.0% 12.0% 10.5% A retail store is offering a diamond ring for sale for 36 months at $128 per month. The retail price of the ring is $4,000. What is the interest rate on this offer? 9.43% 11.20% 11.98% 12.11%arrow_forwardYou have a portfolio consisting solely of stock A and stock B. The portfolio has an expected return of 10.6% stock A has an expected return of 12.4%. Stock B is expected to return 6.6%. What is the portfolio weight of stock A?arrow_forward1. Suppose you have n risky assets you can combine in a portfolio. Each risky asset has an expected return of 8% and a standard deviation of 30%. The risky assets are uncorrelated with each other. (a) Consider an equally weighted portfolio of 2 of these securities. What is its expected return? What will its standard deviation be? (b) Consider an equally weighted portfolio of 30 of these securities. What is its expected return? What will its standard deviation be? (c) Suppose we let the number of these securities increase without bound. That is, n→ ∞o. What happens to the standard deviation of an equally weighted portfolio of these securities as the number of assets in the portfolio becomes extremely large? What will the riskless rate be in this case, and why? -int IDEarrow_forward
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