Homework Answers
Beta of risky asset =1.25
If he wants beta of 1, weight of risky asset
=1/1.25=80%, weight of risk free asset =1-Weight
of risky asset =1-80%=20%
If he wants beta of 0.75, weight of risky asset
=0.75/1.25=60%, weight of risk free asset
=1-Weight of risky asset =1-60%=40%
If he wants beta of 0.5, weight of risky asset
=0.5/1.25=40%, weight of risk free asset =1-Weight
of risky asset =1-40%=60%
If he wants beta of 0.25, weight of risky asset
=0.25/1.25=20%, weight of risk free asset
=1-Weight of risky asset =1-20%=80%
Yes there is a pattern Lower the beta more is percentage of risk
free asset and lower is the percentage of risky assets.
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Changing risk level. Mr. Malone wants to change the overall risk of...
Mr. Malone wants to change the overall risk of his portfolio. Currently, his portfolio is a...
Mr. Malone wants to change the overall risk of his portfolio. Currently, his portfolio is a combination of risky assets with a beta of 1.25 and an expected return of 14%. He will add a risk-free asset (U.S. Treasury bill) to his portfolio. If he wants a beta of 1.0, what percent of his wealth should be in the risky portfolio and what percentage should be in the risk-free asset? If he wants a beta of 0.75? If he wants...
13. A stock has a beta of 1.2 and an expected return of 17 percent. A...
13. A stock has a beta of 1.2 and an expected return of 17 percent. A T-bill earns a rate of 5.1 percent. The beta of a portfolio comprised of these two assets is 0.85. What percentage of the portfolio is invested in the stoc? (1 point) Hint: T-bill eams risk free rate A. 71% B. 77% C.84% D. 89% E. 92% 14. You own a portfolio equally invested in a risk-free asset and two stocks. One of the stocks...
Mrs Gomez has a portfolio with an expected return of 7%. The portfolio is evenly invested...
Mrs Gomez has a portfolio with an expected return of 7%. The portfolio is evenly invested in a stock and a risk-free asset. The market has an expected return of 12% and the risk-free asset has an expected return of 4%. What is the beta of the stock? O a) 0.50 Ob) 0.75 OC) 1.00 O d) 1.25 e) 1.50
SECTION IT these questions are worth double in weight -41. (Double weight question) Suppose in security....
SECTION IT these questions are worth double in weight -41. (Double weight question) Suppose in security. The securities returns are: r on) Suppose investors form portfolios by combing one risky security with one risk free security. The Risk free -0.03 risky -0.15 and SD -0.25 Let wl denote the share of wealth in the risky asset utility function. wealth in the risky asset. Determine the optimal portfolio for an investor with the following (This is of the form E(u)-(expected return...
Tom has $10,000. He can invest the money in (1) a corporate bond, (2) a stock,...
Tom has $10,000. He can invest the money in (1) a corporate bond, (2) a stock, and (3) the risk-free T-bill. The table below provides these assets’ expected returns and standard deviations: Bond (D) Stock (E) T-Bill (F) Expected Return 5% 10% 2% Standard Deviation 10% 20% 0 The coefficient of correlation between the corporate bond and the stock (ρDE) is 30%. Tom has a risk aversion coefficient of A=5. To construct the optimal portfolio with two risky assets and...
a. Portfolio Man wants to create a portfolio as risky as the market and he has...
a. Portfolio Man wants to create a portfolio as risky as the market and he has $1,000,000 to invest. Given this information, fill in the three missing values of the following table: Asset Investment Beta $170,000 1.6 $140,000 1.5 $130,000 D $200,000 Risk-free asset b. An asset's reward-to-risk ratio is defined as its risk premium divided by its standard deviation. It is a useful statistic to summarize the asset's risk-return trade-off. Consider the following information: Stock A has a reward-to-risk...
Note: Part a, b and c are not related to each other. a. Portfolio Man wants...
Note: Part a, b and c are not related to each other. a. Portfolio Man wants to create a portfolio as risky as the market and he has $1,000,000 to invest. Given this information, fill in the three missing values of the following table: Asset Investment Beta $170,000 1.6 $140,000 1.5 $130,000 $200,000 Risk-free asset b. An asset's reward-to-risk ratio is defined as its risk premium divided by its standard deviation It is a useful statistic to summarize the asset's...
Question 1. (15 marks) Mr. Horsefield, the manager of Solomon Mutual Fund Co., expects to evaluate...
Question 1. (15 marks) Mr. Horsefield, the manager of Solomon Mutual Fund Co., expects to evaluate the return and risk of several possible portfolios through the relationships among the risk-free rate of return, market rate of return, market risk premium, and systematic risk. Then, the manager finds that the risk-free rate of return is equal to 4% annually, the average return rate of market is 13%. The manager also collects that each of the three targeting portfolio consists of the...
5. Portfolio risk and return Aa Aa Ariel holds a $7,500 portfolio that consists of four stocks. Her investment in eac...
5. Portfolio risk and return Aa Aa Ariel holds a $7,500 portfolio that consists of four stocks. Her investment in each stock, as well as each stock's beta, is listed in the following table: Stock Beta Standard Deviation Investment Perpetualcold Refrigeration Co. (PRC) $2,625 0.80 12.00% Zaxatti Enterprises (ZE) $1,500 1.30 11.50% Western Gas & Electric Co. (WGC) $1,125 1.15 16.00% Makissi Corp. (MC) $2,250 0.40 19.50% Suppose all stocks in Ariel's portfolio were equally Suppose all stocks in the...
The following questions are in order: Question 1 1 pts The following data applies to Questions...
The following questions are in order:
Question 1 1 pts The following data applies to Questions 1 to 3 Consider two risky assets: a stock fund and a bond fund with the following probability distributions. Scenario Severe recession Mild recession Normal growth Boom What is the expected return for the bond fund? Your answer should be in percentage points and accurate to the hundredth. For example, if your answer is 10.2511%, then type in 10.25 Probability 0.05 0.25 0.40 0.30...
13. A stock has a beta of 1.2 and an expected return of 17 percent. A T-bill earns a rate of 5.1 percent. The beta of a portfolio comprised of these two assets is 0.85. What percentage of the portfolio is invested in the stoc? (1 point) Hint: T-bill eams risk free rate A. 71% B. 77% C.84% D. 89% E. 92% 14. You own a portfolio equally invested in a risk-free asset and two stocks. One of the stocks...
Mrs Gomez has a portfolio with an expected return of 7%. The portfolio is evenly invested in a stock and a risk-free asset. The market has an expected return of 12% and the risk-free asset has an expected return of 4%. What is the beta of the stock? O a) 0.50 Ob) 0.75 OC) 1.00 O d) 1.25 e) 1.50
SECTION IT these questions are worth double in weight -41. (Double weight question) Suppose in security. The securities returns are: r on) Suppose investors form portfolios by combing one risky security with one risk free security. The Risk free -0.03 risky -0.15 and SD -0.25 Let wl denote the share of wealth in the risky asset utility function. wealth in the risky asset. Determine the optimal portfolio for an investor with the following (This is of the form E(u)-(expected return...
a. Portfolio Man wants to create a portfolio as risky as the market and he has $1,000,000 to invest. Given this information, fill in the three missing values of the following table: Asset Investment Beta $170,000 1.6 $140,000 1.5 $130,000 D $200,000 Risk-free asset b. An asset's reward-to-risk ratio is defined as its risk premium divided by its standard deviation. It is a useful statistic to summarize the asset's risk-return trade-off. Consider the following information: Stock A has a reward-to-risk...
Note: Part a, b and c are not related to each other. a. Portfolio Man wants to create a portfolio as risky as the market and he has $1,000,000 to invest. Given this information, fill in the three missing values of the following table: Asset Investment Beta $170,000 1.6 $140,000 1.5 $130,000 $200,000 Risk-free asset b. An asset's reward-to-risk ratio is defined as its risk premium divided by its standard deviation It is a useful statistic to summarize the asset's...
Question 1. (15 marks) Mr. Horsefield, the manager of Solomon Mutual Fund Co., expects to evaluate the return and risk of several possible portfolios through the relationships among the risk-free rate of return, market rate of return, market risk premium, and systematic risk. Then, the manager finds that the risk-free rate of return is equal to 4% annually, the average return rate of market is 13%. The manager also collects that each of the three targeting portfolio consists of the...
5. Portfolio risk and return Aa Aa Ariel holds a $7,500 portfolio that consists of four stocks. Her investment in each stock, as well as each stock's beta, is listed in the following table: Stock Beta Standard Deviation Investment Perpetualcold Refrigeration Co. (PRC) $2,625 0.80 12.00% Zaxatti Enterprises (ZE) $1,500 1.30 11.50% Western Gas & Electric Co. (WGC) $1,125 1.15 16.00% Makissi Corp. (MC) $2,250 0.40 19.50% Suppose all stocks in Ariel's portfolio were equally Suppose all stocks in the...
The following questions are in order:
Question 1 1 pts The following data applies to Questions 1 to 3 Consider two risky assets: a stock fund and a bond fund with the following probability distributions. Scenario Severe recession Mild recession Normal growth Boom What is the expected return for the bond fund? Your answer should be in percentage points and accurate to the hundredth. For example, if your answer is 10.2511%, then type in 10.25 Probability 0.05 0.25 0.40 0.30...
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