The expected return on Stock X is 9.5%, the standard deviation of expected returns is 30%, and the beta coefficient is 0.8. Stock Y has a beta coefficient of 1.1, a standard deviation of 30.0%, and an expected return of 12.0%. The market risk premium is 5%, whereas the risk-free rate is 6%. Determine the necessary return for a portfolio with $7,500 invested in Stock X and $5,500 in Stock Y. Calculations in the middle shouldn't be rounded. Give your response a two-decimal place round. rp = %

Assume Gillette Corporation will pay an annual dividend of $0.64 one year from now. Analysts expect this dividend to grow at 12.7% per year thereafter until the 4th year. Thereafter, growth will level off at 1.6% per year. According to the dividend-discount model, what is the value of a share of Gillette stock if the firm's equity cost of capital is 7.2%? The value of Gillette's stock is (Round to the nearest cent.)

Consider the following portfolio choice problem. The investor has initial wealth w andutility u(x) = (x^n) /n. There is a safe asset (such as a US government bond) that has netreal return of zero. There is also a risky asset with a random net return that has onlytwo possible returns, R1 with probability 1 − q and R0 with probability q. We assumeR1 < 0, R0 > 0. Let A be the amount invested in the risky asset, so that w − A isinvested in the safe asset.a) What are risk preferences of this investor, are they risk-averse, riskneutral or risk-loving?b) Find A as a function of w.

Which of the following statements about the current value of a short European call option on Warwick plc stock, a non-dividend-paying stock, is/are true? (a)    The current value of a short European call option is less than or equal to zero.   (b)    The current value of a short European call option decreases as the volatility of returns on Warwick plc stock increases, holding all else constant. (c)    The current value of a short European call option decreases as the price of Warwick plc stock increases, holding all else constant.

Unsystematic risk is not compensated in equilibrium because it can be eliminated for free through diversification.   Select one: True False

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Rice farming is risky and generates expected income of $100. The certainty equivalent associated with rice farming will be greater than $100 for a risk averse individual and less than $100 for a risk loving individual.  True or False

An investor allocates $30,000 and $50,000 to two assets (A1 and A2). These assets generate 5% and -4.5% rate of returns, respectively. She allocates the remaining 50% of her portfolio to an asset (A3), which provides 4.5% rate of return. Calculate the portfolio's rate of return.

Suppose that a one-year project that requires an initial investment of $5 million has a 65% chance of generating $12 million income, a 5% chance of generating $7 million income, a 10% chance of generating $3 million income and a 20% chance of generating nothing. In what way the VaR is inferior to the Expected Shortfall as a risk measure?

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term bond fund, and the third is a money market fund that provides a safe return of 8%. The characteristics of the risky funds are as follows: Expected Return Standard Deviation Stock fund (S) 20% 30% Bond fund (B) 12 15 The correlation between the fund returns is 0.10. a-1. What are the investment proportions in the minimum - variance portfolio of the two risky funds. (Do not round intermediate calculations. Enter your answers as decimals rounded to 4 places.) Portfolio invested in the stock Portfolio invested in the bond a-2. What are the expected value and standard deviation of the minimum variance portfolio rate of return? (Do not round intermediate calculations. Enter your answers as percentage rounded to 2 decimals.) Expected return % Standard deviation %