Expected return and variance found by calculating the expected return of the
portfolio in each state.
what is the return in a recession for a portfolio of the two assets Use the...
There are three stocks in the market, stock A, stock B, and stock C. The price of stock A today is $75. The price of stock A next year will be $63 if the economy is in a recession, $83 if the economy is normal, and $95 if the economy is expanding. The probabilities of recession, normal times, and expansion are 0.20, 0.65, and 0.15, respectively. Stock A pays no dividends and has a beta of 0.64. Stock B has...
How to construct a risk-free portfolio using two assets? Find two assets with correlation between them equal to -1 Find two assets with correlation between them equal to 1 Find two assets with correlation between them bigger than 0 but smaller than 1 Find two assets with correlation between them bigger than -1 but smaller than 0 Stock A and B are identical in terms of their expected cash flows. Investors like stock A more than stock B today for...
What is the expected return of a portfolio consisting of 60% security 1 and 40% security 2? What is the beta of a portfolio consisting of 60% security 1 and 40% security 2? What is the standard deviation of a portfolio consisting of 60% security 1 and 40% security 2 if the correlation coefficient between securities is zero? What should be the weight of security 1 in a portfolio consisting of security 1 abd 2 to minimize the portfolios standard...
here are two stocks in the market, Stock A and Stock B. The price of Stock A today is $78. The price of Stock A next year will be $67 if the economy is in a recession, $90 if the economy is normal, and $100 if the economy is expanding. The probabilities of recession, normal times, and expansion are .23, .57, and .20, respectively. Stock A pays no dividends and has a correlation of .73 with the market portfolio. Stock...
2. 3: Risk and Rates of Return: Risk in Portfolio Context Risk and Rates of Return: Risk in Portfolio Context The capital asset pricing model (CAPM) explains how risk should be considered when stocks and other assets are held . The CAPM states that any stock's required rate of return is the risk-free rate of return plus a risk premium that reflects only the risk remaining diversification. Most individuals hold stocks in portfolios. The risk of a stock held in...
10. What is the expected return and standard deviation of a portfolio comprised of $7,500 in stock M and $5000 in stock N and covariance of M and N is 20%? (20 Points) State of Probability of Returns if State Occurs Economy State of Economy Stock M Stock N Boom 10% 18% 10% Normal 75% 7% 8% Recession 15% -20% 6%
5. Calculate the coefficient of determination (Rsquared) for the above portfolio 6. What does the coefficient of determination tell us? 7. What is the beta of the above portfolio? 8. What is the expected return on ZYX stock given the following: Return on the market 8% Beta 1.3 Treasury bill rate 2.5% 9. What is the expected return on CBA stock given the following: Beta .5 Risk free rate 3.1% Return on the market 15.7% 10. What is the expected...
Expected return of a portfolio using beta. The beta of four stocks-G, H, I, and J-are 0.47,0.86, 1.08, and 1.56, respectively and the beta of portfolio 1 is 0.99, the beta of portfolio 2 is 0.86, and the beta of portfolio 3 is 1.12. What are the expected returns of each of the four individual assets and the three portfolios if the current SML is plotted with an intercept of 4.5 % Trisk-froe rate ) and a market premium of...
NAME 1. There are two assets and two states of the economy. Rate of Return Rate of Return State of Probability of State of Stock B of Stock A Economy 15% -10% 0.60 Recession -5 30 Boom 0.40 Suppose you have $30,000 total. If you put $9,000 in Stock A and the remainder in Stock B, what will be the expected return and standard deviation on your portfolio? (5 points)
6. Portfolio expected return and risk A collection of financial assets and securities is referred to as a portfolio. Most individuals and institutions invest in a portfolio, making portfolio risk analysis an integral part of the field of finance. Just like stand-alone assets and securities, portfolios are also exposed to risk. Portfolio risk refers to the possibility that an investment portfolio will not generate the investor's expected rate of return. Analyzing portfolio risk and return involves the understanding of expected...