Q4: Assume the following information for stocks A and B. • Expected return on Stock A = 18%. • Expected return on Stock B = 23%. • Correlation between returns of Stock A and Stock B = 0.10. • Standard deviation of returns on Stock A = 40%. • Standard deviation of returns on Stock B = 50%.   Compute   The expected return Standard deviation

Consider the following stocks and pick the best answer. Standard Stock Beta Deviation A 25% 1.25 35% 1.15 28% 1.85 Stock C is likely to provide the lowest expected return Stock B is likely to provide the highest expected return Stock A is likely to provide the highest expected return Stock A is likely to provide the lowest expected return O Stock B is likely to provide the lowest expected return

Consider the following probability distribution for stocks A and B: State Probability Return on Stock A Return on Stock B 1 0.10 10% 8% 2 0.20 13% 7% 3 0.20 12% 6% 4 0.30 14% 9% 5 0.20 15% 8% The coefficient of correlation between A and B is:

Below are standard deviations of four stocks: M, N, O and P.  Stock M N O P Standard deviation 12% 20% 15% 30% 1. Which stock is the riskest?                                                            2. Based on the risk-return tradeoff, which stock should provide the highest  3. If stock O provides a higher return than stock P, what should happen?

1. The following table presents the expected returns of three stocks and the risk free rate. в 4% Stock A 8% Expected return What is the expected return and risk on an equally weighted portfolio composed of these four assets? The standard deviation of stock A is 10% and the covariance between A and B equals 0.0045. The correlation matrix between A, B and C is: 14% 4% Correl B A 1 0.3 0.7 B 0.3 0.5 0.5 Combining stocks A and C in a portfolio in equal proportions will result in a variance of 1.95%. 0.7

Q1: Explain the meaning and significance of a stock's beta coefficient. Illustrate your explanation by drawing, on one graph, the characteristic lines for stocks with low, average, and high risk. (Hint: Let your three characteristic lines intersect at r_i=r_m=6%, the assumed risk-free rate.) Q2: Define the following terms, using graphs or equations to illustrate your answers where feasible. a) Risk, stand-alone risk b) Expected rate of return c) standard deviation, variance d) risk premium for stock i, market risk premium e) Capital Asset Pricing Model (CAPM) f) Expected return on a portfolio g) market risk, diversifiable risk h) Beta i) Security Market Line; SML equation j) Slope of SML and its relationship to risk aversion. Q3. Differentiate between (a) stand-alone risk and (b) risk in a portfolio context. How are they measured, and are both concepts relevant for investors? Q4. Can an investor eliminate market risk from a portfolio of common stocks? How many stocks must a portfolio…

Stock A has a correlation with the market of 0.53. Assuming that the standard deviation of returns for Stock A is 24.0% and that the standard deviation of returns for the market is 10.0%, what is beta for stock A? A 1.31 B. 1.27 C. 0.17 D. 0.22

Suppose you have the following expectations about the market condition and the returns on Stocks X and Y.   a)  What are the expected returns for Stocks X and Y, E(rX) and E(rY)? b)  What are the standard deviations of the returns for Stocks X and Y, σX and σY?

A stock's returns have the following distribution: Probability Rate of Return 0.1 -2% 0.2 -10% 0.4 10 % 0.2 20 % 0.1 30% Calculate the stock's a) expected return, b) standard deviation, and c) coefficient of variation.

Suppose you are given the following information about 2 stocks, what is the Sharpe Ratio 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 rf=3% Enter rate in decimal form, rounded to 4th digit, as in "0.1234"