Which one of the following portfolios will have a beta of one?
1) A portfolio with a zero variance of returns
2) No portfolio can have a beta of zero.
3) A portfolio comprised solely of U. S. Treasury bills
4) A portfolio that is equally as risky as the overall market
5) A portfolio that consists of a single stock
Homework Answers
The answer is 4) A portfolio that is equally as risky as the overall market
Market has a beta of 1
Hence, a portfolio with equal risk as market will have a beta of 1
Portfolio can have a beta of 0.
A portfolio comprising of T-bills will have a zero beta as risk free securities do not have any risk
Q2 (e) Assume for simplicity sake that one factor has been deemed appropriate to "explain" returns...
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...
Pinulo retums? 1 0 capital asset pricing model given historical data 2. Consider Table 1. (%)...
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....
your portfolio has a beta of 1.24. The portfolio consists of 17 percent U.S. Treasury bills,...
your portfolio has a beta of 1.24. The portfolio consists of 17 percent U.S. Treasury bills, 29 percent in stock A, and 54 percent in stock B. Stock A has a risk-level equivalent to that of the overall market. What is the beta of stock B?
You have prepared the following scenario analysis for the returns of the market index portfolio, M,...
You have prepared the following scenario analysis for the returns of the market index portfolio, M, and a stock. Assume that each scenario is equally likely. 1. Rate of return Scenario Bust Boom Market 10% 30% Stock 14% 26% a. Find the variance of the market and the stock, and beta of the stock. b. What is the expected rate of return on the stock and the market index? If the T-bill rate is 6 percent, what does the CAPM...
You have prepared the following scenario analysis for the returns of the market index portfolio, M,...
You have prepared the following scenario analysis for the returns of the market index portfolio, M, and a stock. Assume that each scenario is equally likely. 1. Rate of return Scenario Bust Boom Market 10% 30% Stock 14% 26% a. Find the variance of the market and the stock, and beta of the stock. b. What is the expected rate of return on the stock and the market index? If the T-bill rate is 6 percent, what does the CAPM...
show work < 0.55 21. Your portfolio has a beta of 1.18. The portfolio consists of $3000 in U.S. Treasury bills, $800...
show work
< 0.55 21. Your portfolio has a beta of 1.18. The portfolio consists of $3000 in U.S. Treasury bills, $8000 in stock A, and $5500 in stock B. Stock A has a risk-level equivalent to that of the overall market. What is the beta of stock B? 0 Find Total value of portfolio: 1.10 1.24 8000 + 5500 + 3000 = 16, SOO 1.85 2.09 o் ③ Beta portfolio = 1.18= 10 x 3000 16,500) + (1x8000 TES
Jeanne Lewis is attempting to evaluate two possible portfolios consisting of the same five assets but...
Jeanne Lewis is attempting to evaluate two possible portfolios consisting of the same five assets but held in different proportions. She is particularly interested in using beta to compare the risk of the portfolios and, in this regard, has gathered the following data: a. Calculate the betas for portfolios A and B. b. Compare the risk of each portfolio to the market as well as to each other. Which portfolio is more risky? (Round to three decimal places.) a. The...
Which of the following portfolios has the least risk? Select one: a. A portfolio of Treasury...
Which of the following portfolios has the least risk? Select one: a. A portfolio of Treasury bills b. A portfolio of U.S. common stocks of large firms c. A portfolio of long-term U.S. government bonds d. A portfolio of U.S. common stocks of small firms
This question has two sub-questions. Assume that t-bills generates a return of 3 %. Which of...
This question has two sub-questions. Assume that t-bills generates a return of 3 %. Which of the following risky portfolios is the optimal risky portfolio? Now assume that you wish to have a total expected return on your portfolio of 5 %, how much of your funds should be invested in the optimal risky portfolio, and how much in t-bills, respectively? E(r) σ Portfolio A 10 % 26 % Portfolio B 11 % 31 % Portfolio C 8 % 25...
This question has two sub-questions. Assume that t-bills generates a return of 4 %. Which of...
This question has two sub-questions. Assume that t-bills generates a return of 4 %. Which of the following risky portfolios is the optimal risky portfolio? Now assume that you wish to have a total expected return on your portfolio of 6 %, how much of your funds should be invested in the optimal risky portfolio, and how much in t-bills, respectively? E(r) σ Portfolio A 12 % 27 % Portfolio B 13 % 32 % Portfolio C 10 % 26...
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...
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....
You have prepared the following scenario analysis for the returns of the market index portfolio, M, and a stock. Assume that each scenario is equally likely. 1. Rate of return Scenario Bust Boom Market 10% 30% Stock 14% 26% a. Find the variance of the market and the stock, and beta of the stock. b. What is the expected rate of return on the stock and the market index? If the T-bill rate is 6 percent, what does the CAPM...
You have prepared the following scenario analysis for the returns of the market index portfolio, M, and a stock. Assume that each scenario is equally likely. 1. Rate of return Scenario Bust Boom Market 10% 30% Stock 14% 26% a. Find the variance of the market and the stock, and beta of the stock. b. What is the expected rate of return on the stock and the market index? If the T-bill rate is 6 percent, what does the CAPM...
show work
< 0.55 21. Your portfolio has a beta of 1.18. The portfolio consists of $3000 in U.S. Treasury bills, $8000 in stock A, and $5500 in stock B. Stock A has a risk-level equivalent to that of the overall market. What is the beta of stock B? 0 Find Total value of portfolio: 1.10 1.24 8000 + 5500 + 3000 = 16, SOO 1.85 2.09 o் ③ Beta portfolio = 1.18= 10 x 3000 16,500) + (1x8000 TES
Jeanne Lewis is attempting to evaluate two possible portfolios consisting of the same five assets but held in different proportions. She is particularly interested in using beta to compare the risk of the portfolios and, in this regard, has gathered the following data: a. Calculate the betas for portfolios A and B. b. Compare the risk of each portfolio to the market as well as to each other. Which portfolio is more risky? (Round to three decimal places.) a. The...
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