Homework Answers
Non systematic risk of portfolio is weighted average of individual non systematic risk. Since Unsystematic risk of Market and Risk free asset is 0, Non systematic risk is only calculated taking Security A with its weight.
The following are estimates for two stocks.
| Stock | Expected Return | Beta | Firm-Specific Standard Deviation |
| A | 13% | 0,8 | 30% |
| B | 18% | 1.2 | 40% |
The market index has a standard deviation of 22% and the risk-free rate is 8%.
a) What are the standard deviations of stocks A and B?
b) Suppose that we were to construct a portfolio with proportions:
| Weight | |
| Stock A | 30% |
| Stock B | 45% |
| T-bills | 25% |
Compute the expected return, standard deviation, beta, and nonsystematic standard deviation of the portfolio.
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The table below provides the information of the expected returns, and the standard deviations of two...
You are presented with information on expected returns and standard deviations for 2 assets and a...
You are presented with information on expected returns and standard deviations for 2 assets and a portfolio that was formed with equal proportions of each asset. Asset J Asset K 00800 0.1200 0.0914 Asset L Portfolio Expected return 0.03 0.0767 Variance 0.0842 0.0566 Which of the following statements is true (there are several, select all that are correct): If you want to decrease the risk (standard deviation) of the portfolio, you will increase the proportion to invest in asset J...
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...
1.3 (5 points) Two stocks have the following expected returns and standard deviations Stock Stock Expected...
1.3 (5 points) Two stocks have the following expected returns and standard deviations Stock Stock Expected return Standard Deviation A 10% 12% B 15% 20% Consider a portfolio of A and B, and let w, and wg denote the portfolio weights of these two assets, with W + W, =1. Suppose that the correlation between the expected returns on A and B is equal to 0.3. Use these data to construct the portfolio of A and B with the lowest...
nts) Consider the fllowing two Security X and Y 1.2 Return 9.40% 1360% Risk-free assets 25%...
nts) Consider the fllowing two Security X and Y 1.2 Return 9.40% 1360% Risk-free assets 25% (1) Which security (X or Y) in the table hs risk? e has the least total risk? e least total risk? Which has the least che ecst third invested in Y? is the systematic risk for a portfolio with twor two-thirds of the funds invested in X and one- X, 45 (3) What is the portfolio beta and the portfolio expected return if you...
Stocks A & B have the expected returns and standard deviations shown in the table below:...
Stocks A & B have the expected returns and standard deviations shown in the table below: Stock E(R) 12% 30% 19% 50% The correlation between A and B is 0.4. The risk-free rate is 3% and you have a risk-aversion parameter of 2. What is the proportion of your investment in A and B, respectively, in your optimal risky portfolio?
a. Given the following holding-period returns, compute the average returns and the standard deviations for the...
a. Given the following holding-period returns, compute the
average returns and the standard deviations for the Zemin
Corporation and for the market.
b. If Zemin's beta is 1.98 and the risk-free rate is 7
percent, what would be an expected return for an investor owning
Zemin? (Note: Because the preceding returns are based on monthly
data, you will need to annualize the returns to make them
comparable with the risk-free rate. For simplicity, you can
convert from monthly to...
Consider the following data about the expected returns, standard deviations, and correlation between two assets: Asset...
Consider the following data about the expected returns, standard deviations, and correlation between two assets: Asset 1 Asset 2 Expected return 5.3% 6.8% Standard deviation 4.5% 7.8% Correlation coefficient -0.6 Calculate the expected return and standard deviation of a portfolio consisting of a 20% weight in asset 1 and an 80% weight in asset 2. What happens to the expected return and standard deviation of the portfolio when the weight combination changes to 50% in asset 1 and 50% in...
(e) Two securities with the same standard deviations can have different betas. (f) Two securities that...
(e) Two securities with the same standard deviations can have different betas. (f) Two securities that have the same correlation coefficients with the market portfolio will have the same betas. (g) The return on a share with a beta of zero is expected to vary directly with the return on the market portfolio. (h) The equation for the security market line when the expected return on the market is 15% and the risk-free rate is 6% is rį = 9...
am i Saved Two assets have the following expected returns and standard deviations when the risk-free...
am i Saved Two assets have the following expected returns and standard deviations when the risk-free rate is 5%: Asset A E(rA) 10% o20% Asset B E(rB) = 15% OB - 27% An investor with a risk aversion of A 3 would find that on a risk-return basis. Multiple Choice only asset A is acceptable only asset B is acceptable
2. Consider the information in Table1. Table 1 Standard Deviation of Stock Stock Correlation with Market...
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...
You are presented with information on expected returns and standard deviations for 2 assets and a portfolio that was formed with equal proportions of each asset. Asset J Asset K 00800 0.1200 0.0914 Asset L Portfolio Expected return 0.03 0.0767 Variance 0.0842 0.0566 Which of the following statements is true (there are several, select all that are correct): If you want to decrease the risk (standard deviation) of the portfolio, you will increase the proportion to invest in asset J...
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...
1.3 (5 points) Two stocks have the following expected returns and standard deviations Stock Stock Expected return Standard Deviation A 10% 12% B 15% 20% Consider a portfolio of A and B, and let w, and wg denote the portfolio weights of these two assets, with W + W, =1. Suppose that the correlation between the expected returns on A and B is equal to 0.3. Use these data to construct the portfolio of A and B with the lowest...
nts) Consider the fllowing two Security X and Y 1.2 Return 9.40% 1360% Risk-free assets 25% (1) Which security (X or Y) in the table hs risk? e has the least total risk? e least total risk? Which has the least che ecst third invested in Y? is the systematic risk for a portfolio with twor two-thirds of the funds invested in X and one- X, 45 (3) What is the portfolio beta and the portfolio expected return if you...
Stocks A & B have the expected returns and standard deviations shown in the table below: Stock E(R) 12% 30% 19% 50% The correlation between A and B is 0.4. The risk-free rate is 3% and you have a risk-aversion parameter of 2. What is the proportion of your investment in A and B, respectively, in your optimal risky portfolio?
a. Given the following holding-period returns, compute the
average returns and the standard deviations for the Zemin
Corporation and for the market.
b. If Zemin's beta is 1.98 and the risk-free rate is 7
percent, what would be an expected return for an investor owning
Zemin? (Note: Because the preceding returns are based on monthly
data, you will need to annualize the returns to make them
comparable with the risk-free rate. For simplicity, you can
convert from monthly to...
(e) Two securities with the same standard deviations can have different betas. (f) Two securities that have the same correlation coefficients with the market portfolio will have the same betas. (g) The return on a share with a beta of zero is expected to vary directly with the return on the market portfolio. (h) The equation for the security market line when the expected return on the market is 15% and the risk-free rate is 6% is rį = 9...
am i Saved Two assets have the following expected returns and standard deviations when the risk-free rate is 5%: Asset A E(rA) 10% o20% Asset B E(rB) = 15% OB - 27% An investor with a risk aversion of A 3 would find that on a risk-return basis. Multiple Choice only asset A is acceptable only asset B is acceptable
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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