You have $10,100 to invest. You decide to invest $18,000 in Google and short sell $7,900 worth of Yahoo! Google's expected return is 18% with a volatility of 36% and Yahoo!'s expected return is 12% with a volatility of 27%. The stocks have a correlation of 0.95. What is the expected return and volatility of the portfolio?
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- You have just invested in a portfolio of three stocks. The amount of money that you invested in each stock and its beta are summarized below. Stock Investment Beta A $222,000 1.41 B 333,000 0.53 C 555,000 1.30 Calculate the beta of the portfolio and use the Capital Asset Pricing Model (CAPM) to compute the expected rate of return for the portfolio. Assume that the expected rate of return on the market is 12 percent and that the risk-free rate is 7 percent. (Round beta answer to 3 decimal places, e.g. 52.750 and expected rate of return answer to 2 decimal places, e.g. 52.75%.) Beta of the portfolio enter the beta rounded to 3 decimal places Expected rate of return enter percentages rounded to 2 decimal places %The rate of return on the market stock index is 13 percent. The rate of return on a risk-freebank account is 1%. The B (beta) of stock XYZ is 1.5. Use the data to answer the questionsbelow.a. What is the market risk premium? Show your work.b. What is the cost of equity for XYZ? Show your work.c. What is the stock XYZ risk premium? Show your work.d. Draw the graph of the Security Market Line and show the stock of XYZ on the graph.The end-of-year dividend on stock ABC is expected to be $0.8. The growth rate of dividend isexpected to be 5 percent for ever. The current price of the ABC stock is $10. Use the data toanswer the questions below.e. What is the cost of equity for stock ABC? Show your work.f. Suppose stock KLM has the same end-of-year dividend, dividend growth rate andprice as stock ABC, but the risk of KLM stock is much greater than of the ABC stock.What is your estimate of the cost of equity of stock KLM using the method at part e?Do you agree with the valuation of the cost of…You are currently considering in investing Rs.1.2 million in equity investment portfolio. Your analysis reveals that equity stock of the following three companies are suitable options for your investment. Company P R Expected retum (%) Standard deviation (%) Correlation coefficient; 25 22 20 30 26 24 PQ QR -0.5 +0.4 PR +0.6 You are required to; (a) Calculate the expected returm of the portfolio if Rs.1.2 million is equally invested in the stocks of all three companies.
- You have just invested in a portfolio of three stocks. The amount of money that you invested in each stock and its beta are summarized below. Stock Investment Beta A $218,000 1.50 B 327,000 0.60 C 545,000 1.18 Calculate the beta of the portfolio and use the Capital Asset Pricing Model (CAPM) to compute the expected rate of return for the portfolio. Assume that the expected rate of return on the market is 17 percent and that the risk-free rate is 8 percent. (Round beta answer to 3 decimal places, e.g. 52.750 and expected rate of return answer to 2 decimal places, e.g. 52.75%.) Beta of the portfolio Expected rate of return %You have just invested in a portfolio of three stocks. The amount of money that you invested in each stock and its beta are summarized below. Stock. Investment A B C $224,000 336,000 560,000 Beta of the portfolio Beta Expected rate of return 1.50 0.60 Calculate the beta of the portfolio and use the Capital Asset Pricing Model (CAPM) to compute the expected rate of return for the portfolio. Assume that the expected rate of return on the market is 16 percent and that the risk-free rate is 8 percent. (Round beta answer to 3 decimal places, e.g. 52.750 and expected rate of return answer to 2 decimal places, e.g. 52.75%.) 1.35 do % SUPP1. You have $100,000 invested in this portfolio. $55,000 is invested in IBM: Probability of State of Economy 0.15 IBM 0.05 TWTR -0.17 Recession Normal 0.65 0.08 0.12 Вoom 0.20 0.13 0.29 What is the expected return and standard deviation of each stock? What is the portfolio expected return and standard deviation? You are considering adding another stock, DNKN, with a beta of 1.3 to the portfolio. The market risk premium is 8% and the risk-free rate is 2.5%. What is the expected return of this asset? You decide to open a separate account at another brokerage firm. Your goal is to have a portfolio beta of 1.12. The portfolio consists of 20% U.S. Treasury bills, 50% stock A, and 30% stock B. Stock A has a risk- level equivalent to that of the overall market. What is the beta of stock B? Please interpret what this beta measure represents relative to the beta of the market. What is the difference between systematic and unsystematic risk? Be sure to mention which is diversifiable risk and…
- Assume you have invested in two other stocks: Stock A has a beta of 1.20 and Stock B has a beta of 0.8. Rf= 2% and Rm = 12%. Using CAPM, what are the expected returns for each stock? Return of stock = Risk free rate + beta ( market rate of return - risk free rate of return) Return of Stock A = 2% + 1.20 (12% - 2%) = 2.12% Return of Stock B = 2% + 0.80 (12% - 2%) = 2.08% What is the expected return of an equally weighted portfolio of these two stocks? Weight of stock A = 0.50 Weight of Stock B = 0.50 Expected return = (Return of Stock A * weight of Stock A) + (Return of Stock B * weight of stock B) = (2.12 * 0.50) + (2.08*0.50) = 1.06 + 1.04 = 3% What is the beta of an equally weighted portfolio of these two stocks? Beta of portfolio = (Beta of Stock A * weight of stock A) + (Beta of Stock B * weight of Stock B) = (1.20*0.50) + (0.80*0.50) = 0.60 + 0.40 = 1 Beta of portfolio = 1 (iv) Sketch the SML to represent the…Suppose the market risk premium is 4% and the risk-free interest rate is 3% . Using the data in the table, LOADING..., calculate the expected return of investing ina. Starbucks' stock.b. Hershey's stock.c. Autodesk's stock.Suppose the market risk premium is 6% and the risk-free interest rate is 5% . Using the data in the table, calculate the expected return of investing ina. Starbucks' stock.b. Hershey's stock.c. Autodesk's stock.
- Suppose the market risk premium is 6% and the risk-free interest rate is 6%. Using the data in the table, calculate the expected return of investing in a. Starbucks' stock. b. Hershey's stock. c. Autodesk's stock. Why don't all investors hold Autodesk's stock rather than Hershey's stockSuppose you estimate that stock A has a volatility of 32% and a beta of 1.42, whereasstock B has a volatility of 68% and a beta of 0.75.(a) Which stock has more total risk?(b) Which stock has more market risk?(c) Suppose the risk-free rate is 2% and you estimate the market’s expected return as10%. Which firm has a higher cost of equity capitalStock J has a beta of 1.37 and an expected return of 14.01%. Stock K has a beta of .92 and an expected return of 10.95%. You want a portfolio with the same risk as the market. a. What is the portfolio weight of each stock? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.) b. What is the expected return of your portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Stock J Stock K b. Expected return a. %