I would like part d and e answered please
a.
Calculating Beta,
Beta = (Correlation*Standard deviation of stock)/Standard Deviation of market portfolio
Beta for Stock 1 = (0.2*0.06)/0.08
Beta for Stock 1 = 0.15
Beta for Stock 2 = (0.8*0.12)/0.08
Beta for Stock 2 = 1.2
b.
Calculating equilibrium return using CAPM model,
r = Rf + Beta(Rm - Rf )
Equilibrium Return for Stock 1 = 0.02 + 0.15(0.16 - 0.02)
Equilibrium Return for Stock 1 = 4.1%
Equilibrium Return for Stock 2 = 0.02 + 1.2(0.16 - 0.02)
Equilibrium Return for Stock 2 = 18.8%
c.
Formula for Expected Return for equally weighted portfolio,
Expected Return = 0.5(R1) + 0.5(R2)
Expected Return = 0.5*4.1 + 0.5*18.8
Expected Return = 2.05 + 9.4
Expected Return = 11.45
Covariance = Correlation*(Standard Deviation of 1)*(Standard Deviation of 2)
Covariance = 0.16*6*12
Covariance = 11.52
Portfolio Standard Deviation= (w2A*σ2(RA) + w2B*σ2(RB) + 2*(wA)*(wB)*Cov(RA, RB) )0.5
Formula for Standard Deviation of Portfolio
Here, portfolio is equally weighted so w = 0.5 and putting values of standard deviation from table
Portfolio Standard Deviation = 7.12%
I would like part d and e answered please 2. Consider the information in Table 1...
Part D and E please 2. Consider the information in Table 1. Table 1 Correlation with market portfolio 0.20 0.80 1.00 0.00 Standard deviation Return Beta Stock 1 Stock 2 Market portfolio Risk-free asset 5% 12% 8% 0% 16% 2% 0 (a) Consider Table 1. Calculate betas for stock I and stock 2 (b) Consider Table 1. Compute the equilibrium expected return according to the CAPM for stocks 1 and 2 (c) Consider Table 1 and the equilibrium expected returns...
2. Consider the information in Table1. Table 1 Standard Deviation of Stock Stock Correlation with Market Portfolio 0.75 0.20 Stock 20% 15% 14% 0% 49% ected Market Return Risk Free Rate Return (a) Consider Table 1 . Calculate betas for Stock 1, Stock 2, and a portfolio consisting of 75% invested in Stock 1 and (b) Consider Table 1. Compute the equilibrium expected return according to the CAPM for Stock 1, Stock 2, and the (c) Consider Table 1 and...
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3. Consider Table 3 Table 3 Stock Expected Return 10% 5% Standard Deviation 12% 8% Correlation Coefficient 0.40 (a) Consider Table 3. Compute the expected return and standard deviation of return of an equally-weighted portfolio of stocks A and B (b) Consider Table 3. Solve for the composition, expected return and standard deviation of the minimum variance portfolio (c) Consider Table 3. Sketch the set of portfolios comprised of stocks A and B (d) Consider Table 3. Suppose that a...
Pinulo retums? 1 0 capital asset pricing model given historical data 2. Consider Table 1. (%) 3.77 Table 1 Summary Statistics Alpha, Beta, Expected Return and Variance a/c to the Stocks Sample Single Index Model Covariance Residual and Return Alpha Beta with Market Expected Variance Variance Market (%) (%) Return (%) (%) 3.60 3.59 4.80 Market 4.20 0.00 8.70 (a) Consider Table 1. Using the single index model, calculate beta and alpha for stocks 1 and 2. Interpret your findings....
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(a) Suppose that the CAPM holds. Consider stocks A, B, C and D plotted in the graph below together with portfolios X, T (the tangency or market portfolio), Z, and the risk-free asset S. No explanation necessary. (i) If you could invest in the risk-free asset S and only one of the stocks A, B, C or D, which stock would you choose? (ii) Which of the stocks, A, B, C, or D, has the highest beta? (iii) Which of...
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Q2 (e) Assume for simplicity sake that one factor has been deemed appropriate to "explain" returns on stocds (0) How and there is no idiosyncratic risk. Derive the arbitrage pricing theory would you perform a test of the predictions of the capital asset pricing model given historical data (APT) model 2. Consider Tablo 1 Return and Variance a/c to the Stocks Sample Covariance Residual AlphaBeta Expected Variance and Return | with Market | Variance | (96) Return Market 3.60 4.80...