(Security market line) You are considering the construction of a portfolio comprised of equal investments in each of four different stocks. The betas for each stock are found below: Beta Asset A B 2.40 1.10 D 0.40 -1.80 (Click on the icon in order to copy its contents into a spreadsheet.) a. What is the portfolio beta for your proposed investment portfolio? b. How would a 25 percent increase in the expected return on the market impact the expected return of your portfolio? c. How would a 25 percent decrease in the expected return on the market impact the expected return on each asset? d. If you are interested in decreasing the beta of your portfolio by changing your portfolio allocation in two stocks, which stock would you decrease and which would you increase? Why? a. The portfolio beta for your proposed investment portfolio is (Round to three decimal places.) b. A 25% increase in the expected return on the market will cause the expected return of your portfolio to by %. (Select from the drop-down menu and round the answer to two decimal places.) c. A 25% decrease in the expected return on the market will have the following impact on the expected re Asset A would by %. (Select from the drop-down menu and round the answer to two decim decrease Asset B would ▼ by ☐ %. (Select from the drop-down menu and round the answer to two decin increase Asset C would ▼by (Select from the drop-down menu and round the answer to two decimal places.) Asset D would by %. (Select from the drop-down menu and round the answer to two decimal places.) d. If you are interested in decreasing the beta of your portfolio by changing your portfolio allocation in two stocks, which stock would you decrease and which would you increase? Why? (Select the best choice below.) O A. You should decrease asset D and increase asset A because asset D's beta is negative and asset A has the highest beta. OB. You should increase asset D and decrease asset A because asset D's beta is negative and asset A has the highest beta. OC. You should increase asset A and decrease asset D because asset D's beta is negative and asset A has the highest beta. OD. You should increase asset B and decrease asset C because asset B' beta is close to 1 and asset C's beta is the closest to zero.
(Security market line) You are considering the construction of a portfolio comprised of equal investments in each of four different stocks. The betas for each stock are found below: Beta Asset A B 2.40 1.10 D 0.40 -1.80 (Click on the icon in order to copy its contents into a spreadsheet.) a. What is the portfolio beta for your proposed investment portfolio? b. How would a 25 percent increase in the expected return on the market impact the expected return of your portfolio? c. How would a 25 percent decrease in the expected return on the market impact the expected return on each asset? d. If you are interested in decreasing the beta of your portfolio by changing your portfolio allocation in two stocks, which stock would you decrease and which would you increase? Why? a. The portfolio beta for your proposed investment portfolio is (Round to three decimal places.) b. A 25% increase in the expected return on the market will cause the expected return of your portfolio to by %. (Select from the drop-down menu and round the answer to two decimal places.) c. A 25% decrease in the expected return on the market will have the following impact on the expected re Asset A would by %. (Select from the drop-down menu and round the answer to two decim decrease Asset B would ▼ by ☐ %. (Select from the drop-down menu and round the answer to two decin increase Asset C would ▼by (Select from the drop-down menu and round the answer to two decimal places.) Asset D would by %. (Select from the drop-down menu and round the answer to two decimal places.) d. If you are interested in decreasing the beta of your portfolio by changing your portfolio allocation in two stocks, which stock would you decrease and which would you increase? Why? (Select the best choice below.) O A. You should decrease asset D and increase asset A because asset D's beta is negative and asset A has the highest beta. OB. You should increase asset D and decrease asset A because asset D's beta is negative and asset A has the highest beta. OC. You should increase asset A and decrease asset D because asset D's beta is negative and asset A has the highest beta. OD. You should increase asset B and decrease asset C because asset B' beta is close to 1 and asset C's beta is the closest to zero.
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
Related questions
Question
quiz 8-14
Transcribed Image Text:(Security market line) You are considering the construction of a portfolio comprised of equal investments in each of four different stocks. The betas for each stock are found below:
Beta
Asset
A
B
2.40
1.10
D
0.40
-1.80
(Click on the icon in order to copy its contents into a spreadsheet.)
a. What is the portfolio beta for your proposed investment portfolio?
b. How would a 25 percent increase in the expected return on the market impact the expected return of your portfolio?
c. How would a 25 percent decrease in the expected return on the market impact the expected return on each asset?
d. If you are interested in decreasing the beta of your portfolio by changing your portfolio allocation in two stocks, which stock would you decrease and which would you increase? Why?
a. The portfolio beta for your proposed investment portfolio is
(Round to three decimal places.)
b. A 25% increase in the expected return on the market will cause the expected return of your portfolio to
by
%. (Select from the drop-down menu and round the answer to two decimal places.)
c. A 25% decrease in the expected return on the market will have the following impact on the expected re
Asset A would
by %. (Select from the drop-down menu and round the answer to two decim
decrease
Asset B would
▼ by ☐ %. (Select from the drop-down menu and round the answer to two decin
increase
Asset C would
▼by
(Select from the drop-down menu and round the answer to two decimal places.)
Asset D would
by %. (Select from the drop-down menu and round the answer to two decimal places.)
d. If you are interested in decreasing the beta of your portfolio by changing your portfolio allocation in two stocks, which stock would you decrease and which would you increase? Why? (Select the best choice below.)
O A. You should decrease asset D and increase asset A because asset D's beta is negative and asset A has the highest beta.
OB. You should increase asset D and decrease asset A because asset D's beta is negative and asset A has the highest beta.
OC. You should increase asset A and decrease asset D because asset D's beta is negative and asset A has the highest beta.
OD. You should increase asset B and decrease asset C because asset B' beta is close to 1 and asset C's beta is the closest to zero.
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