You own a stock portfolio Invested 16 percent in Stock Q, 24 percent In Stock R, 36 percent In Stock S, and 24 percent In Stock T. The betas for these four stocks are .94, 1.00, 1.40, and 1.85, respectively. What Is the portfolio beta? Note: Do not round Intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Portfolio beta
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- Question 3 Suppose you hold a diversified portfolio consisting of a $7,500 investment in each of 20 different common stocks. The portfolio beta is equal to 1.12. Now, suppose you have decided to sell one of the stocks in your portfolio with a beta equal to 1.0 for 7,500 and to use these proceeds to buy another stocks for your portfolio. Assume the new stock's beta to 1.75. Calculate your portfolio's new beta.What is the expected return from an investment if there is a 20 percent chance of a 4 percent return, a 40 percent chance of a 8 percent return, and a 40 percent chance of a 12 percent returnSuppose you visit with a financial adviser, and you are considering investing some of your wealth in one of three investment portfolios stocks, bonds, or commodities. Your financial adviser provides you with the following table, which gives the probabilities of possible returns from each investment To maximize your expected return, you should choose: Stocks Bonds Probability Return Probability Return 0.15 20% 0.15 16.7% 06 10% T 04 7.5% 0.25 8% 0.45 3.3% OA bonds OB stocks OC. commodities OD. All of the portfolios have the same expected return. If you are risk-averse and had to choose between the stock or the bond investments, you would choose OA the stock portfolio because there is less uncertainty over the outcome OB. the bond portfolio because there is less uncertainty over the outcome. OC. the stock portfolio because of greater expected return. OD. the bond portfolio because of greater expected return. Commodities Probability Return 02 20% 0.2 15% 0.2 8% 02 02 5% 0%
- Given the following information, what is the standard deviation of the returns on a portfolio that is invested 35 percent in both Stocks A and C, and 30 percent in Stock B? (see attached chart)Suppose Amy is choosing how to allocate her portfolio between two asset classes: risk-free government bonds and a risky group of diversified stocks. The following table shows the risk and return associated with different combinations of stocks and bonds. Fraction of Portfolio in Diversified Standard Deviation of Portfolio Return Average Annual Return Stocks (Risk) (Percent) Combination (Percent) (Percent) A 0 1.50 0 B 25 3.50 5 с 50 5.50 10 D 75 7.50 15 E 100 9.50 20 If Amy reduces her portfolio's exposure to risk by opting for a smaller share of stocks, he must also accept a average annual return. Higher/Lower Suppose Amy currently allocates 25% of her portfolio to a diversified group of stocks and 75% of her portfolio to risk-free bonds; that is, she chooses combination B. She wants to increase the average annual return on her portfolio from 3.5% to 7.5%. In order to do so, she must do which of the following? Check all that apply. Sell some of her stocks and place the proceeds in a…The value of Jon’s stock portfolio is given by the function v(t) = 50 + 77t + 3t2, where v is the value of the portfolio in hundreds of dollars and t is the time in months. How much money did Jon start with? (y-intercept) What is the minimum value of Jon’s portfolio? (vertex)
- 53. Car rental patterns A car rental agency in a major city has a total of 2200 cars that it rents from three loca- tions: Metropolis Airport, downtown, and the smaller City Airport. Some weekly rental and return pat- terns are shown in the table (note that Airport means Metropolis Airport). Rented from Returned to АР DT CA Airport (AP) Downtown (DT) 90% 10% 10% 5% 80% 5% At the beginning of a week, how many cars should be at each location so that same number of cars will be there at the end of the week (and hence at the start of the next week)? 54. Nutrition A psychologist studying the effects of nutrition on the behavior of laboratory rats is feeding one group a combination of three foods: I, II, and III. Each of these foods contains three additives, A, B, and C, that are being used in the study. Each additive is a certain percentage of each of the foods as follows: Foods II II Additive A 10% 30% 60% Additive B Additive C 0% 4% 5% 2% 2% 12% If the diet requires 53 g per day of A, 4.5…QUESTION 1 Elizabeth has decided to form a portfolio by putting 30% of her money into stock 1 and 70% into stock 2. She assumes that the expected returns will be 10% and 18%, respectively, and that the standard deviations will be 15% and 24%, respectively. Compute the standard deviation of the returns on the portfolio assuming that the two stocks' returns are uncorrelated. 17.4%. 27.4%. 7.4%. 11.4%. QUESTION 2 Elizabeth has decided to form a portfolio by putting 30% of her money into stock 1 and 70% into stock 2. She assumes that the expected returns will be 10% and 18%, respectively, and that the standard deviations will be 15% and 24%, respectively. Describe what happens to the standard deviation of the portfolio returns when the coefficient of correlation ρ decreases. The standard deviation of the portfolio returns decreases as the coefficient of correlation decreases. The standard deviation of the portfolio returns increases as the coefficient…How would you describe the relationship between a risky investment and the return on that investment (think stocks or retirement accounts)? a casual or limited relationship there is no relationship between the level of risk and the return you get on your investment a direct or positively correlated relationship an inverse or negatively correlated relationship
- Consider a certain butterfly spread on IBM: this is a portfolio that is long one call at $250, long one call at $270, and short 2 calls at $260. Assume expiration of all options is at the same time $T=2$. If today the calls cost $10.00, $5.00, and $1.00 for the strikes at 250, 260, and 270, respectively, what will be the profit or loss from buying this spread if the stock turns out to be trading at $255 at time $T$? Assume the risk-free rate is 5%. Select one: a. 3.28 b. 3.01 c. 4.09 d. 3.89Which of the following statements is most correct? If you add enough randomly selected stocks to a portfolio, you can completely eliminate all of the market risk from the portfolio. If you form a large portfolio of stocks each with a beta greater than 1.0, this portfolio will have more market risk than a single stock with a beta = 0.8. Company-specific risk can be reduced by forming a large portfolio, but normally even highly diversified portfolios are subject to market risk. Answers a, b, and c are correct. Answers b and c are correct.True or False: Increasing the number of stocks in a portfolio reduces firm-specific risk. TrueFalseConsider two stock portfolios. Portfolio A consists of 20 different stocks from firms in different industries. Portfolio B consists of four different stocks, also from firms in different industries. The return on Portfolio A is likely to be volatile than that of Portfolio B.Suppose a stock analyst recommends buying stock in the following companies:Company IndustryToyonda AutomotiveSaalvo AutomotiveGMW AutomotiveHonsubishi AutomotiveShexxon Oil and gasMobron Oil and gasAiring AircraftBoebus AircraftGoohoo TechnologyPherk PharmaceuticalEach of the following portfolios contains four of the stock picks. Which portfolio is the least diversified? Pherk, Airing, Goohoo, ShexxonToyonda, Honsubishi, Boebus, AiringToyonda, Saalvo, GMW, HonsubishiBoebus, Airing, Shexxon, Mobron