Suppose the expected returns and standard deviations of Stocks A and B are E(RA) =.092, E(RB) = 152, đA = .362, and Og = .622.%3DCalculate the expected return of a portfolio that is composed of 37 percent A and63 percent B when the correlation between the returns on A and B is .52. (Do nota-1.round intermediate calculations and enter your answer as a percent rounded to 2decimal places, e.g., 32.16.)Calculate the standard deviation of a portfolio that is composed of 37 percent A and63 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 percentrounded to 2 decimal places, e.g., 32.16.)Calculate the standard deviation of a portfolio with the same portfolio weights as inh part (a) when the correlation coefficient between the returns on A and B is -.52. (Donot round intermediate calculations and enter your answer as a percent roundedto 2 decimal places, e.g., 32.16.)a-1. Expected returna-2. Standard deviationb.Standard deviation

Portfolio is a bundle of various investments. To manage the risk, investors invest the money in…

Answered: Suppose the expected returns and…

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

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Suppose the expected returns and standard deviations of Stocks A and B are E(RA) = .092, E(RB) = 152, OA = .362, and og = .622. Calculate the expected return of a portfolio that is composed of 37 percent A and а-1. 63 percent B when the correlation 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.) 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 part (a) when the correlation coefficient between the returns on A and B is -.52. (Do b. not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Given the returns and probabilities for the three possible states listed below, calculate the covariance between the returns of Stock A and Stock B. For convenience, assume that the expected returns of Stock A and Stock B are 8.10 percent and 11.60 percent, respectively. (Round answer to 4 decimal places, e.g. 0.0768.) Good OK Poor Covariance Probability 0.22 0.60 0.18 Return on Stock A 0.30 0.10 -0.25 Return on Stock B 0.50 0.10 -0.30
If you plot the relationship between portfolio expected return and portfolio beta, what is the slope of the line that results? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) | Slope of the line %
(b) Assume that the covariance between Stock X and Stock Y is -0.005. Calculate the expected rate of return, variance and standard deviation of Jenny’s portfolio. {Hint: you can express your answers for the variance and standard deviation in decimals or percentage form:• For decimals, the covariance in your equation should be -0.005• For percentage, the covariance in your equation should be -50%2(= -50/10000)]
a) The covariance between stocks A and B is 0.0014, standard deviation of stock A is 0.032, and standard deviation of stock B is 0.044. Which of the following is the most appropriate to depict the risk- return characteristics of a portfolio consisting of only stocks A and B, and explain why? E(R) E(R) E(R) A A A (A) (B) (C) b) found to be half of the required return (Rs) on stock B. The risk-free rate (R) is one-fourth of the required Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is return on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A (DA) to beta of B (OB). c) Assume that the short-term risk-free rate is 3%, the market index S&P500 is expected to pay returns of 15% with the standard deviation equal to 20%. Asset A pays on average 5%, has standard deviation equal to 20% and is NOT correlated with the S&P500. Asset B pays on average 8%, also has standard deviation equal to 20% and has correlation of 0.5 with…
Suppose that three stocks (A, B, and C} and two common risk factors (1 and 2) have the following relationship: E(RA) = (1.1)A1 + (0.8)A2 E(RB) = (0.7)A1 + (0.6)A2 E(RC) = (0.3)A1 + (0.4)A2 a. If A1 = 4 percent and A2 = 2 percent, what are the prices expected next year for each of the stocks? Assume that all three stocks currently sell for $30 and will not pay a dividend in the next year. b. Suppose that you know that next year the prices for Stocks A, B, and C will actually be $31.50, $35.00, and $30.50. Create and demonstrate a riskless, arbitrage investment to take advantage of these mispriced securities. What is the profit from your investment? You may assume that you can use the proceeds from any necessary short sale. Problems 13 and 14 refer to the data contained in Exhibit 7.23, which lists 30 monthly excess returns to two different actively managed stock portfolios (A and B) and three different common risk factors (1, 2, and 3). {Note: You may find it…
b) The covariance between stocks A and B is 0.0014, standard deviation of stock A is 0.032, and standard deviation of stock B is 0.044. Which of the following is the most appropriate to depict the risk-return characteristics of a portfolio consisting of only stocks A and B, and explain why? E(R) E(R) E(R) B. B. A. A (A) (В) (C)
Calculate the standard deviation of a portfolio with 0.24 invested in Asset A, 0.33 invested in Asset B, and the rest invested in Asset C. Express your answer as a decimal with four digits after the decimal point (e.g., 0.1234, not 12,34%). Std Dev(A) = 0.43, Std Devirg) = 0.67. Std Dev(rc)=0.53 Correlation(A) =-0.24, Correlation(Arc)-0.32, Correlationirere)=0.09 Type your answer.....
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 0.03 + 0.7 RM + eA RB = -0.02+ 1.2 RM + eB σM =0.20; R-square A = 0.25 R-square B = 0.20 What is the standard deviation of A & B, respectively? Group of answer choices 0.54, 0.28 0.28, 0.54 0.45, 0.50 0.50, 0.45
b) The covariance between stocks A and B is 0.0014, standard deviation of stock A is 0.032, and standard deviation of stock B is 0.044. Which of the following is the most appropriate to depict the risk-return characteristics of a portfolio consisting of only stocks A and B, and explain why. E(R) E(R) E(R) (A) (B) (C)
(a) Calculate the expected rate of return, variance and standard deviation of Stock X & Stock Y. (b) Assume that the covariance between Stock X and Stock Y is -0.005. Calculate the expected rate of return, variance and standard deviation of Jenny’s portfolio. {Hint: you can express your answers for the variance and standard deviation in decimals or percentage form:• For decimals, the covariance in your equation should be -0.005• For percentage, the covariance in your equation should be -50%2(= -50/10000)] (c) Explain why, in general, the portfolio risk is lower than the weighted average of individual stocks’ risk. (d) Suppose the risk-free rate is 4%, the market risk premium is 15% and the betas for stocks X and Y are 1.2 and 0.2 respectively. Using the CAPM model, estimate the required rates ofreturn of Stock X and Stock Y. (e) Given the results above, are Stocks X and Y overpriced or underpriced? Explain.
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 search

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