The current T-bill money market rate is 3%. The following table contains the probability distribution for the two stocks you are considering: Stock Expected Return Variance PFE 0.20 NSD 0.14 The correlation coefficient between PFE and NSD is 0.8. If you desire to use PFE and the T-bill to create a portfolio that yields an expected return of 12%, what is the weight in PFE? O A.0.471 OB. 0.384 OC.0.616 0.16 0.09 OD. 0.529

The current T-bill money market rate is 3%. The following table contains the probability distribution for the two stocks you are considering: Stock Expected Return Variance PFE 0.20 NSD 0.14 The correlation coefficient between PFE and NSD is 0.8. If you desire to use PFE and the T-bill to create a portfolio that yields an expected return of 12%, what is the weight in PFE? O A.0.471 OB. 0.384 OC.0.616 0.16 0.09 OD. 0.529

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter6: Risk And Return

Section: Chapter Questions

Problem 14P

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You have observed the following returns over time: Assume that the risk-free rate is 6% and the market risk premium is 5%. What are the betas of Stocks X and Y? What are the required rates of return on Stocks X and Y? What is the required rate of return on a portfolio consisting of 80% of Stock X and 20% of Stock Y?
An analyst has modeled the stock of a company using the Fama-French three-factor model. The market return is 10%, the return on the SMB portfolio (rSMB) is 3.2%, and the return on the HML portfolio (rHML) is 4.8%. If ai = 0, bi = 1.2, ci = 20.4, and di = 1.3, what is the stock’s predicted return?
The expected return on the Market Portfolio M is E(RM)=15%, the standard deviation is sM=25% and the risk-free rate is Rf=5%. a. Suppose that stock X has standard deviation sX=30%, and correlation with the market portfolio rXM=0.5. Compute bX and E(RX) (the beta and the expected return of stock X) according to the Market Model (ie: alpha equals zero under the Market Model). b. Suppose that stock Y has standard deviation sy=15%, and correlation with the market portfolio rYM=-0.1. Compute bY and E(RY) (the beta and the expected return of stock Y) according to the Market Model (ie: alpha equals zero under the Market Model). c. Compute the beta of a portfolio composed 65% of stock X and 35% of stock Y.
Which statement is correct? The collection of all portfolios that minimize variance for varying levels of expected return is called the efficient frontier. The mean-variance frontier is the top-half of the efficient frontier. The part of efficient frontier with the highest expected return for a given level of variance is called the mean- variance frontier. The collection of all portfolios out of risky asset that minimize variance for varying levels of expected return is shaped like a hyperbola.
*Stock A has a beta of 1.3 and an expected return of 10.2. Stock B has a beta of 0.8 and an expected return of 8.7. If these stocks are priced correctly according to the CAPM, what is the risk-free rate? Give your answer in percentage to the nearest basis point.
Please answer asap The current T-bill money market rate is 3%. The following table contains the probability distribution for the two stocks you are considering: Stock Expected Return Variance PFE 0.20 NSD 0.14 A. 12.25% The correlation coefficient between PFE and NSD is 0.8. If you use these two stocks to create a minimum variance portfolio, what is the expected return on the portfolio? B. 13.38% C. 11.84% 0.16 D. 10.15% 0.09
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Suppose that the risk-free rate r, = 0.03, the expected market return uM = 0.11, and the market volatility oM = 0.16. Stock A has beta = 1.2 and diversifiable risk o̟ = 0.08. Stock B has beta = 0.8 and 0, = 0.03. Stock C has beta = 1.5 and o̟ = 0.1. Consider a portfolio P which is 45% in Stock A, 25% in Stock B, and 30% in Stock C. (a) Find the value of beta for this portfolio. (b) Assuming CAPM, find the portfolio's expected return µp. (c) Find the standard deviation of the portfolio's systematic (or mar- ket) risk. (d) Find the standard deviation o, of the diversifiable risk of P. (You may assume that the diversifiable risks of A,B, and C are uncorrelated.)
Suppose Stock A has B = 1 and an expected return of 11%. Stock B has a B = 1.5. The risk- free rate is 5%. Also consider that the covariance between B and the market is 0.135. Assume the CAPM is true. Answer the following questions: a) Calculate the expected return on share B. b) Find the equation of the Capital Market Line (CML). c) Build a portfolio Q with B = 0 using actions A and B. Indicate weights (interpret your result) and expected return of portfolio Q.
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