Suppose the expected return for the market portfolio and risk-free rate are 13 percent and 3 percent respectively. Stocks A, B, and C have Treynor measures of 0.24, 0.16, and 0.11, respectively. Based on this information, an investor should ______?

Suppose the expected return for the market portfolio and risk-free rate are 13 percent and 3 percent respectively. Stocks A, B, and C have Treynor measures of 0.24, 0.16, and 0.11, respectively. Based on this information, an investor should ______?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 13QTD

See similar textbooks

Related questions

Q: Assume that using the Security Market Line(SML) the required rate of return(RA)on stock A is found…

A: As per the security market line following is the Rate of return for stock A and stock B…

Q: You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a…

A: Introduction: Beta less than 1 state that the security price will move with the market and a beta…

Q: Consider a portfolio consisting of the following three stocks: The volatility of the market…

A: By using the CAPM approach, the expected return of the stock is calculated. A portfolio consists of…

Q: Assume that using the Security Market Line(SML) the required rate of return(RA)on stock A is found…

A: Required rate of return on stock A is RARequired rate of return on stock B is RBRisk free rate is…

Q: Consider a portfolio consisting of the following three stocks: E. The volatility of the market…

A: This is a complex question with several subparts, so according to Bartleby guidelines, we will…

Q: Security A has a beta of 1.16 and an expected return of .1137 and Security B has a beta of .92 and…

A: The Capital Asset Pricing Model (CAPM) defines the relationship, in particular inventories, between…

Q: ASsume the following data for a stock: Beta 15, risk-free rate = 4 percent, market rate of return 12…

Q: Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is…

A: Given that;Return on market portfolio is denoted by RM.Required return on stock A is RA and the…

Q: If the risk free rate is 6 %, the expected return on the market portfolio is 12% and the beta of…

A: The Capital Asset Pricing Model (CAPM) is the model which shows the relationship between the…

Q: Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is…

A: Capital Asset Pricing Model (CAPM): CAPM is the method of calculating the expected return on…

Q: Suppose the market risk premium is 9 % and also that the standard deviation of returns on the market…

A: Expected rate of return is the minimum return that a shareholder requires on the investment made in…

Q: Consider a portfolio consisting of the following three stocks: . The volatility of the market…

A: portfolio weight volatility correlation with market beta expected return HEC CORP 0.23 11% 0.33…

Q: Assuming that the CAPM approach is appropriate, compute the required rate of return for each of the…

A: Given: Risk free rate = 0.07 Market rate = 0.13 Different betas:

Q: According to the CAPM, what is the expected market return given an expected return on a security of…

A: Details given are : Expected return on security = 15.8% Beta = 1.2 Risk free rate (Rf) = 5% We need…

Q: Consider a portfolo consisting of the following three stocks: E The volatility of the market…

A: Beta is used as a measure of systematic risk in the CAPM model. It provides a direct relation…

Q: A stock has an expected return of 13.1 percent, a beta of 1.28, and the expected return on the…

A: Given details are : Expected return on stock = 13.1% Beta = 1.28 Expected market return (Rm) = 11%…

Q: Given that the formula for CAPM is Expected return= risk free rate + Beta*(Return on market - risk…

A: CAPM is a model used to determine a theoretical appropriate required rate of return of the asset.

Q: Calculate covariance and coefficient of correlation between the returns of the stocks A and B.

A: Covariance is calculated by analyzing at-return surprises (standard deviations from the expected…

Q: Suppose there are two stocks, one with expected return of 14% with a beta of 1 and the other with…

A: The expected rate of return is the return that an investor expects the company to generate out of…

Q: Assume that using the Security Market Line the required rate of return (RA) on stock A is found to…

A: As per the above consideration The ratio of expected return on A and expected return on B is

Q: An investor has a portfolio of two securities, a stock with a beta of 1.24 and a risk-free asset.…

A: Portfolio refers to the combination of two or securities constructed with a view to minimize the…

Q: Adam wants to determine the required return on a stock portfolio with a beta coefficient of 0.5.…

A: Required rate of return = risk free rate + beta * (market return - risk free rate)

Q: Consider the following probability distribution for stocks A and B: State Probability…

A: We can calculate expected return and standard deviation by using following formulas Expected return…

Q: Consider the following two investment proposals and their returns under different economic…

A: given, economic scenario probability return on GE stock return on TI stock bear 0.5 25% -2%…

Q: For a stock that has a beta of 1.4 and an expected return of 13%, whilst the expected risk premium…

A: Formulas: Expected return = Risk free rate +( Beta*Market risk premium) Expected return = Risk free…

Q: According to CAPM, the expected rate of return of a portfolio with a beta of 1.0 and an alpha of 0…

A: CAPM is useful model to calculate theoretically/ expected rate of return It considers risk free rate…

Q: You have estimated the following probability distributions of expected future returns for Stocks X…

A: Expected return of a stock refers to the amount of profit or loss that an investor can incur on his…

Q: Given the following information, use the CAPM to calculate the beta of the stock. The required rate…

A: Capital Asset Pricing Model CAPM model shows the relationship between the expected return and risk…

Q: According to the CAPM, what is the market risk premium given an expected return on a security of…

A: Market risk premium = ( Expected return - risk free rate ) / beta

Q: You have a portfolio which consists of 75% of stock 1 (o^2 = 0.16) and 25% of stock 2 (o^2 = 0.09).…

A: Return on the stock is based on the risk free rate, market return and the risk associated with the…

Q: Assume that two securities, A and B, constitute the market portfolio, their proportions and…

A: Most of the investors use beta in order to know whether the stock moves in the same direction as the…

Q: Suppose you have the following expectations about the market condition and the returns on Stocks X…

A: Given:

Q: A stock has an expected return of 11.5 percent, the risk-free rate is 3.2 percent, and the market…

A: Expected return of a stock can be computed by using capital asset pricing model: Here, Expected…

Q: Stock M has a relevant risk equals 1.75, and unsystematic risk equals 2. If the real risk-free rate…

A: RRR adjusted for inflation = [(1+RRR)/(1-i)] - 1 where RRR is Required Rate of Return = Risk Free…

Q: ns for stocks A, B, C, D, and E are 7 %, 10%, 12%, 25%, and 18% respectively. The corresponding…

A: Security with the lowest coefficient of variation shall be least risky. Coefficient of variation =…

Q: Consider a portfolio consisting of the following three stocks: . The volatility of the market…

A: given, rf=3%rm=8%σm=10% portfolio weights volatility correlation HEC 0.23 11% 0.33 Green…

Q: We have the following information on Stocks A and B. The risk-free rate is S the market risk premium…

A: Stock is overpriced when the expected return is less than required rate and when stock is…

Q: Consider the following table, which gives a security analyst's expected return on two stocks for two…

A: For the Calculation of Alpha, first we have to calculate Beta of each stocks and Beta can be…

Q: Two stocks, A and B, have beta coefficients of 0.8 and 1.4, respectively. If the expected return on…

A: The evaluation of the systematic risk or volatility of a stock or the portfolio as compared to the…

Q: Assume that the Capital Asset Pricing Model holds. The market portfolio has an expected return of…

A: IF Capital Asset Pricing Model (CAPM) hold good, Expected Return on Stock = Risk-Free rate + (…

Q: Consider information given in the table below and answers the question asked thereafter: State…

Q: You are given the following information about a portfolio consisting of stocks X, Y, and Z: Stock…

A: The provided table is: Stock Investment Expected return X 10,000 8% Y 15,000 12% Z 25,000…

Q: Suppose the risk-free return is 2% and the market portfolio has an expected return of 12% and a…

A: Beta=Volatility of stock x correlation with market /volatility of market Expected return =Risk free…

Q: Consider the following two scenarios for the economy and the expected returns in each scenario for…

A: Beta of Stock = Change in Rate of Return of Stock / Change in Market return Therefore, Beta of Stock…

Q: he covariance between stocks A and B is 0.0014, standard deviation of stock A is 0.032, and standard…

A: We are provided with the graphs, that show the standard deviation (risk) in X-axis and expected…

Q: Stocks A and B have the following probability distributions of expected future returns:…

A: Probability Return Expected return A B C=A*B 0.1 -20% -2.00% 0.2 7% 1.40% 0.4 15% 6.00%…

Q: Suppose that the index model for stocks A and B is estimated from excess returns with the following…

A: Formulas:

Q: A stock has a beta of 1.04, the expected return on the market is 11.75, and the risk-free rate is…

A: A stock is a financial security issued by companies to raise equity funds from the primary market.…

Concept explainers

Portfolio Management

Portfolio management is the process by which an investor decides that how the person will invest in a variety of assets in order to get a desired return in the future. A portfolio means a pool of assets that includes securities, bonds, and other investment instruments which helps in risk minimization of the money that has been invested. In other words, it can be said that a portfolio means a combination of assets in which an investor decides to invest their money in order to get a lump sum return in the future or even a series of cash flow that the person is expecting at the end of their job life.

Question

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Assume that using the Security Market Line(SML) the required rate of return(RA)on stock A is found to be halfof the required return (RB) on stock B. The risk-free rate (Rf) is one-fourthof the required return on A. Return on market portfolio is denoted by RM. Find the ratioof betaof A(A) tobeta of B(B). Thank you for your help.
Assume that using the Security Market Line(SML) the required rate of return(RA)on stock A is found to be halfof the required return (RB) on stock B. The risk-free rate (Rf) is one-fourthof the required return on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A(A) to beta of B(B).
When working with the CAPM, which of the following factors can be determined with the most precision? a. The beta coefficient of "the market," which is the same as the beta of an average stock. b. The beta coefficient, bi, of a relatively safe stock. c. The market risk premium (RPM). d. The most appropriate risk-free rate, rRF. e. The expected rate of return on the market, rM.
Assume the market portfolio's and risk-free rate's projected returns are 13% and 3%, respectively. Treynor values of 5.24, 0.16, and 5.11 are assigned to stocks A, B, and C, respectively. An investor should based on this information.
Assume that using the Security Market Line(SML) the required rate of return(RA)on stock A is found to be half of the required return (RB) on stock B. The risk-free rate (Rf) is one-fourthof the required return on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A(A) to beta of B(B).
c) Assume that using the Security Market Line (SML) the required rate of return (Ra) on stock A is found to be half of the required return (Rs) on stock B. The risk-free rate (R:) is one-fourth of the required return on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A (Ba) to beta of B (B).
Assume that using the Security Market Line the required rate of return (RA) on stock A is found to be half of the required return (RB) on stock B. The risk-free rate (Rf) is one-fourth of the required return on A. Return on the market portfolio is denoted by RM. Find the ratio of beta of A (bA) to beta of B (bB).
When working with the CAPM, which of the following factors can be determined with the most precision? a. The most appropriate risk-free rate, rRF. b. The market risk premium (RPM). c. The beta coefficient, bi, of a relatively safe stock. d. The expected rate of return on the market, rM. e. The beta coefficient of "the market," which is the same as the beta of an average stock.
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?
Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is found to be half of the required return (RB) on stock B. The risk-free rate (Rf) is one-fourth of the required return on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A (bA) to beta of B (bB). (please show all workings)
Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is foundto be half of the required return (RB) on stock B. The risk-free rate (Rf) is one-fourth of the requiredreturn on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A (A) to beta of B(B). d) Assume that the short-term risk-free rate is 3%, the market index S&P500 is expected to payreturns of 15% with the standard deviation equal to 20%. Asset A pays on average 5%, has standarddeviation equal to 20% and is NOT correlated with the S&P500. Asset B pays on average 8%, also hasstandard deviation equal to 20% and has correlation of 0.5 with the S&P500. Determine whetherasset A and B are overvalued or undervalued, and explain why. (Hint: Beta of asset i (??) = ???????, where ??,?? are standard deviations of asset i and marketportfolio, ??? is the correlation between asset i and the market portfolio)
Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is foundto be half of the required return (RB) on stock B. The risk-free rate (Rf) is one-fourth of the requiredreturn on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A (A) to beta of B(B). d) Assume that the short-term risk-free rate is 3%, the market index S&P500 is expected to payreturns of 15% with the standard deviation equal to 20%. Asset A pays on average 5%, has standarddeviation equal to 20% and is NOT correlated with the S&P500. Asset B pays on average 8%, also hasstandard deviation equal to 20% and has correlation of 0.5 with the S&P500. Determine whetherasset A and B are overvalued or undervalued, and explain why. (Hint: Beta of asset i (??) =???????, where ??,?? are standard deviations of asset i and marketportfolio, ??? is the correlation between asset i and the market portfolio)Question 2. Foreign exchange marketsStatoil, the national…