Homework Answers
Answer to part a)
Following details are given in the question:-
| Particulars | B | C | Remarks |
| Expected Return(Er) | 10% | 10% | Expected Return of both the stocks is same |
| Standard Deviation (Risk) | 4% | 2% | But the risk of stock B is more than that of stock C |
So it is clear from the above summary that since the risk of stock C is is less than stock B with same expected return i.e., 10%, Stock C should be purchased.
Answer to part b) and c)
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9. You are currently holding stock A which has expected return of 10% and standard deviation...
9. You are currently holding stock A which has expected return of 10% and standard deviation of 3%. You would like...
9. You are currently holding stock A which has expected return of 10% and standard deviation of 3%. You would like to add one of the following two stocks (so you would like to have a portfolio with two stocks): BTC в 10% 4% 10% 2% (r) (i) a. Which stock should you buy assuming that all three stocks are uncorrelated and you can only purchase one of the stocks B or C? b. Now assume that P(A,B) = 0.5...
6. Consider the following information for Stocks 1 and 2: Expected Standard Stock Return Deviation 1...
6. Consider the following information for Stocks 1 and 2: Expected Standard Stock Return Deviation 1 20% 40% 2 12% 20% NE a. The correlation between the returns of these two stocks is 0.3. How will you divide your money between Stocks 1 and 2 if your aim is to achieve a portfolio with an expected return of 18% p.a.? That is, what are the weights assigned to each stock? Also take note of the risk (i.e., standard deviation) of...
Compute the expected return, standard deviation, beta, and nonsystematic standard deviation of the portfolio. 4. Assume...
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2. Company A's stock has a beta of BA 1.5, and Company B's stock has a beta of βΒ-2.5. Expected r...
2. Company A's stock has a beta of BA 1.5, and Company B's stock has a beta of βΒ-2.5. Expected returns on this two stocks are E [rA]-9.5 and E rB 14.5. Assume CAPM holds. At age 30, you decide to allocate ALL your financial wealth of $100k between stock A and stock B, with portfolio weights wA + wB1. You would like this portfolio to be risky such that Bp- 3 (a) Solve for wA and wB- (b) State...
Stock A’s expected return and standard deviation are E[rA] = 8% and σA= 15%, while stock...
Stock A’s expected return and standard deviation are E[rA] = 8% and σA= 15%, while stock B’s expected return and standard deviation are E[rB] = 12% and σB= 21%.  a. Determine the expected return and standard deviation of the return on a portfolio with weights wA=.35 and wB=.65 for the following alternative values of correlation between A and B: pAB=0.6 and pAB= -0.4. b. Assume now that pAB=-1.0 and find the portfolio p of stocks A and B that...
3. Stocks A, B, C and D have the same standard deviation of 10% and the...
3. Stocks A, B, C and D have the same standard deviation of 10% and the same expected return of 5%. The following table shows the correlation coefficient between the returns on these stocks. (note that correlation with itself is always 1). Stock B Stock C Stock D Stock A Stock B Stock C Stock D Stock A 1.0 -0.4 0.9 -0.1 1.0 0.1 1.0 -0.5 -0.2 1.0 (a) Consider a portfolio P = 0 A+ B+ C, calculate the...
4. Stock A has the expected return of 12%, the standard deviation of 15%, and the...
4. Stock A has the expected return of 12%, the standard deviation of 15%, and the CAPM beta of 0.5. Stock B has the expected return of 18%, the standard deviation of 20% and the CAPM beta of 1.1. The risk-free rate is 3%. If you have no other wealth could invest in some combination of the risk-free asset and only one of these two stocks, which of the stocks A and B will you choose and why? (1 point)
A stock has a beta of 1.14 and an expected return of 10.5 percent. A risk...
A stock has a beta of 1.14 and an expected return of 10.5
percent. A risk free asset currently early 2.4 percent.
a. What is the expected return on a portfolio that is equally
invested in the two assets?
b. If a portfolio of the two assets has a beta of .92, what are
the portfolio weights?
c. If a portfolio of the two assets has an expected return of 9
percent, what is its beta?
d. If a portfolio...
3. The risk-free rate is 0% and the expected return on the market is 10%. You...
3. The risk-free rate is 0% and the expected return on the market is 10%. You are given the same stocks as in Q 2. Assuming, as in Q 2(b), that you hold the stock as part of a well-diversified portfolio, which stocks would you buy if the expected return on the stocks were as below: Stock Expected return in % Stock o (in %) 20 B 0.5 D 5 2
The following table provides the expected return and the standard deviation of returns for srocks and...
The following table provides the expected return and the
standard deviation of returns for srocks and gold. Your client is
currently holding a portfolio of stocks and he is considering
whether he should replace half of the stocks with gold.
.
Question 1 Part a) The following table provides the expected return and the standard deviation of returns for stocks and gold. Your client is currently holding a portfolio of stocks and he is considering whether he should replace haif...
9. You are currently holding stock A which has expected return of 10% and standard deviation of 3%. You would like to add one of the following two stocks (so you would like to have a portfolio with two stocks): BTC в 10% 4% 10% 2% (r) (i) a. Which stock should you buy assuming that all three stocks are uncorrelated and you can only purchase one of the stocks B or C? b. Now assume that P(A,B) = 0.5...
6. Consider the following information for Stocks 1 and 2: Expected Standard Stock Return Deviation 1 20% 40% 2 12% 20% NE a. The correlation between the returns of these two stocks is 0.3. How will you divide your money between Stocks 1 and 2 if your aim is to achieve a portfolio with an expected return of 18% p.a.? That is, what are the weights assigned to each stock? Also take note of the risk (i.e., standard deviation) of...
Compute the expected return, standard deviation, beta, and nonsystematic standard deviation of the portfolio. 4. Assume that the total market value of an initial portfolio is $300,000. Suppose that the owner of this portfolio wishes to decrease risk by reducing the allocation to the risky portfolio from y = 0.7 to y = 0.56. How do you reallocate your risky portfolio? 5. Which of the following factors reflect pure market risk for a given corporation? a. Increased short-term interest rates....
2. Company A's stock has a beta of BA 1.5, and Company B's stock has a beta of βΒ-2.5. Expected returns on this two stocks are E [rA]-9.5 and E rB 14.5. Assume CAPM holds. At age 30, you decide to allocate ALL your financial wealth of $100k between stock A and stock B, with portfolio weights wA + wB1. You would like this portfolio to be risky such that Bp- 3 (a) Solve for wA and wB- (b) State...
3. Stocks A, B, C and D have the same standard deviation of 10% and the same expected return of 5%. The following table shows the correlation coefficient between the returns on these stocks. (note that correlation with itself is always 1). Stock B Stock C Stock D Stock A Stock B Stock C Stock D Stock A 1.0 -0.4 0.9 -0.1 1.0 0.1 1.0 -0.5 -0.2 1.0 (a) Consider a portfolio P = 0 A+ B+ C, calculate the...
4. Stock A has the expected return of 12%, the standard deviation of 15%, and the CAPM beta of 0.5. Stock B has the expected return of 18%, the standard deviation of 20% and the CAPM beta of 1.1. The risk-free rate is 3%. If you have no other wealth could invest in some combination of the risk-free asset and only one of these two stocks, which of the stocks A and B will you choose and why? (1 point)
A stock has a beta of 1.14 and an expected return of 10.5
percent. A risk free asset currently early 2.4 percent.
a. What is the expected return on a portfolio that is equally
invested in the two assets?
b. If a portfolio of the two assets has a beta of .92, what are
the portfolio weights?
c. If a portfolio of the two assets has an expected return of 9
percent, what is its beta?
d. If a portfolio...
3. The risk-free rate is 0% and the expected return on the market is 10%. You are given the same stocks as in Q 2. Assuming, as in Q 2(b), that you hold the stock as part of a well-diversified portfolio, which stocks would you buy if the expected return on the stocks were as below: Stock Expected return in % Stock o (in %) 20 B 0.5 D 5 2
The following table provides the expected return and the
standard deviation of returns for srocks and gold. Your client is
currently holding a portfolio of stocks and he is considering
whether he should replace half of the stocks with gold.
.
Question 1 Part a) The following table provides the expected return and the standard deviation of returns for stocks and gold. Your client is currently holding a portfolio of stocks and he is considering whether he should replace haif...
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