Rachel is a financial investor who actively buys and sells in the securities market. Now she has a portfolio of all blue chips, including: $13,500 of Share A, $7,600 of Share B, $14,700 of Share C, and $5,500 of Share D. Required: a) Compute the weights of the assets in Rachel's portfolio? (. - and 17.2% over the past four years, respectively. Calculate the geometric average return of the portfolio for this period. - c) Assume that expected return of the stock A in Rachel's portfolio is 13.6% this year. The risk premium on the stocks of the same industry are 4.8%, betas of these stocks is 1.5 and the inflation rate was 2.7%. Calculate the risk-free rate of retum using Capital Market Asset Pricing Model (CAPM). economic situation and Rachel's portfolio returns next year, calculate the expected return, variance and standard deviation of the portfolio.* b) If Rachel's portfolio has provided her with returns of 9.7%, 12.4%, -5.5% :1) Following is forecast for State of economy Probability Rate of returns Mild Recession 0.35 - 5% Growth 0.45 15% Strong Growth 0.20 30%
Rachel is a financial investor who actively buys and sells in the securities market. Now she has a portfolio of all blue chips, including: $13,500 of Share A, $7,600 of Share B, $14,700 of Share C, and $5,500 of Share D. Required: a) Compute the weights of the assets in Rachel's portfolio? (. - and 17.2% over the past four years, respectively. Calculate the geometric average return of the portfolio for this period. - c) Assume that expected return of the stock A in Rachel's portfolio is 13.6% this year. The risk premium on the stocks of the same industry are 4.8%, betas of these stocks is 1.5 and the inflation rate was 2.7%. Calculate the risk-free rate of retum using Capital Market Asset Pricing Model (CAPM). economic situation and Rachel's portfolio returns next year, calculate the expected return, variance and standard deviation of the portfolio.* b) If Rachel's portfolio has provided her with returns of 9.7%, 12.4%, -5.5% :1) Following is forecast for State of economy Probability Rate of returns Mild Recession 0.35 - 5% Growth 0.45 15% Strong Growth 0.20 30%
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
Related questions
Question
Transcribed Image Text:Rachel is a financial investor who actively buys and sells in the securities market. Now she has a portfolio of all blue chips, including: $13,500 of Share A,
$7,600 of Share B, $14,700 of Share C, and $5,500 of Share D.
Required: a) Compute the weights of the assets in Rachel's portfolio? (. -
and 17.2% over the past four years, respectively. Calculate the geometric average return of the portfolio for this period. - c) Assume that expected
return of the stock A in Rachel's portfolio is 13.6% this year. The risk premium on the stocks of the same industry are 4.8%, betas of these stocks is 1.5 and
the inflation rate was 2.7%. Calculate the risk-free rate of retum using Capital Market Asset Pricing Model (CAPM).
economic situation and Rachel's portfolio returns next year, calculate the expected return, variance and standard deviation of the portfolio.*
b) If Rachel's portfolio has provided her with returns of 9.7%, 12.4%, -5.5%
:1) Following is forecast for
State of economy Probability Rate of returns Mild Recession 0.35 - 5% Growth 0.45 15% Strong Growth 0.20 30%
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps with 6 images
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education