Problem 11-12 Calculating Portfolio Betas [LO 3] You own a portfolio equally invested in a risk-free asset and two stocks. One of the stocks has a beta of 1.22 and the total portfolio is equally as risky as the market. What must the beta be for the other stock in your portfolio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Beta
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- Question 7 The following figures show the optimal portfolio choice for two investors with different levels of risk-aversion graphically. Which statement is correct? E[R] 0.3 0.25 0.2 0.15 0.1 0.05 0 0 0.05 0.1 0.15 Figure 1 0.2 0.25 0.3 0.35 0.4 0.45 o(R) [a]H 0.3 0.25 0.2 0.15 0.1 0.05 0 0 Figure (2) shows an investor that borrows in risk-free rate and invests in the risky asset. Figure (1) shows an investor with a conservative investment behavior. 0.05 0.1 0.15 In the optimal point of both figures, the highest indifference curve is tangent to the efficient frontier. In Figure (1), more aggressive investment decision led to a higher Sharpe ratio. Figure 2 0.2 0.25 o (R) 0.3 0.35 0.4 0.45QUESTION 37 You have developed the following data on three stocks: Stocks Std. Deviation Beta A 0.45 0.60 B 0.60 0.75 C 0.55 1.50 If you are a risk minimizer, you should choose Stock a well-diversified portfolio. if it is to be held in isolation and Stock if it is to be held as part of A; A O B; A C; A O A; C O C; B 3.75 po 13Problem 11-24 Using CAPM [LO 4] A stock has a beta of 1.38 and an expected return of 13.6 percent. A risk-free asset currently earns 4.7 percent. a. What is the expected return on a portfolio that is equally invested in the two assets? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. If a portfolio of the two assets has a beta of .98, what are the portfolio weights? Note: Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616. c. If a portfolio of the two assets has an expected return of 12.8 percent, what is its beta? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. d. If a portfolio of the two assets has a beta of 2.58, what are the portfolio weights? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616. a. Expected…
- QUESTION 6 Suppose that at a particular instant you observe the following situation: Security A B C B₁ 0.5 1.5 1.2 6% 12% 20% Show how one can design an (arbitrage) investment strategy that would result in a positive return with a zero beta (Hint: you need to buy security C by shorting securities A and B).Problem 11-23 Calculating Portfolio Weights [LO 1] Stock J has a beta of 1.28 and an expected return of 13.56 percent, while Stock K has a beta of .83 and an expected return of 10.5 percent. 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.) а. Stock J Stock K b. Expected return %17 [Question text] Stock W, X, Y and Z has a beta of 1.19, 0.87, 0.91 and 1.26, respectively. Based on the beta values, which stock should you choose if you are a risk averse investor? Select one: A. Z B. X C. Y D. W
- Question 16 a. Based on the following information, calculate the expected return and standard deviation for each of the following stocks. What are the covariance and correlation between the returns of the two stocks? Calculate the portfolio return and portfolio standard deviation if you invest equally in each asset. Returns State of Economy Prob J K Recession 0.25 -0.02 0.034 Normal 0.6 0.138 0.062 Boom 0.15 0.218 0.092 b. A portfolio that combines the risk-free asset and the market portfolio has an expected return of 7 percent and a standard deviation of 10 percent. The risk-free rate is 4 percent, and the Page 7 of 33 expected return on the market portfolio is 12 percent. Assume the capital asset pricing model holds. What expected rate of return would a security earn if it had a .45 correlation with the market portfolio and a standard deviation of 55 percent? c. Suppose the risk-free rate is 4.2 percent and the market portfolio has an expected return of 10.9 percent. The market…p 19 A portfolio analyst has been asked to allocate investment funds among three different stocks. The relevant data for the stocks is shown in the following table f the goal is to maximize return while maintaining risk within acceptable bounds (in this case, a portfolio standard deviation of no more than 20%, find the proper allocation of the funds to each stock O Ak Risk (Standard Deviation to 5) 25% 12% 10% What is the expected retum of the optimal stock portfolio? Stock A B C O Multiple Choice O Return (R) 20% O 10% 15% 17.9% 15 15 19.15 36.4% Pair of Stocks A to B A to C to C Help Joint Risk (Covariance) 0.05 0.075 -0.05 Save & Exit SubmitProblem 12-7 Stock Betas (LO4, CFA1) You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a beta of 1.57 and the total portfolio is exactly as risky as the market, what must the beta be for the other stock in your portfolio? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Beta
- stions Problem 8.13 (CAPM, Portfolio Risk, and Return) eBook Problem Walk-Through Question 11 of 15▸ Check My Work Consider the following information for stocks A, B, and C. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.) Stock Expected Return Standard Deviation Beta A 8.50% 16% 0.8 C 9.25 10.75 16 16 1.1 1.7 Fund P has one-third of its funds invested in each of the three stocks. The risk-free rate is 6.5%, and the market is in equilibrium. (That is, required returns equal expected returns.) a. What is the market risk premium (rM - TRF)? Round your answer to one decimal place. % b. What is the beta of Fund P? Do not round intermediate calculations. Round your answer to two decimal places. c. What is the required return of Fund P? Do not round intermediate calculations. Round your answer to two decimal places. % d. What would you expect the standard deviation of Fund P…16 [Question text] What is the beta of the following portfolio? Stock Amount invested (RM) Security beta A 14,200 1.39 B 23,900 0.98 C 8,400 1.52 Select one: A. 1.01 B. 1.05 C. 1.20 D. 1.12Problem 11-2 Portfolio Expected Return [LO 1] You own a portfolio that has $2,600 invested in Stock A and $3,700 invested in Stock B. Assume the expected returns on these stocks are 11 percent and 17 percent, respectively. What is the expected return on the portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Expected return %