Homework Answers
Answer - Stock B with a beta of 0.5 and standard deviation of 35%
Systematic risk or undiversifiable risk that is added by a stock or a security to well diversified portfolio is identified by beta of that particular stock or security. Lower the beta, lower the risk.
When you want to minimize the risk, you would want to have the stock with lowest systematic risk or beta and hence choose Stock B.
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Which of the following stock would be best addition into your well diversified portfolio if your...
As a well-diversified portfolio owner, my first preference for an addition to my portfolio would be:...
As a well-diversified portfolio owner, my first preference for an addition to my portfolio would be: Select one: a. Negative-beta stock b. AAA Corporate Bond c. Zero-beta stock d. Treasury bill
You already have a very well-diversified portfolio of common stock with a beta of 2, and...
You already have a very well-diversified portfolio of common stock with a beta of 2, and you want to add stock AAA or BBB into the portfolio. AAA’s standard deviation is 0.2300 and its beta is 4. BBB’s standard deviation is 0.6500 and its beta is 0.5. How will the addition affect the portfolio’s risk? If we add more factors into the one-factor asset pricing model, what happens to the required returns, increase or decrease? If the expected future cash...
Please answer The benchmark for a well-diversified stock portfolio is the market portfolio, which is a...
Please answer
The benchmark for a well-diversified stock portfolio is the market portfolio, which is a portfolio containing all stocks. The relevant risk of an individual stock is measured by its beta coefficient, which is defined under the Capital Asset Pricing Model (CAPM) as the amount of risk that the stock contributes to the well-diversified portfolio. Based on your understanding of the CAPM and beta, answer the following question: Which of the following statements about stock's correlation with the market...
To solve this problem, note that a well-diversified portfolio should lie on the Capital Market Line....
To solve this problem, note that a well-diversified portfolio should lie on the Capital Market Line. The market portfolio has an expected return of 11.5 percent and a standard deviation of 19 percent. The risk-free rate is 4.1 percent. a. What is the expected return on a well-diversified portfolio with a standard deviation of 9 percent? b. What is the standard deviation of a well-diversified portfolio with an expected return of 20 percent?
Stock X has an expected return of 15%, standard deviation of 20%, beta of 0.8. Stock...
Stock X has an expected return of 15%, standard deviation of 20%, beta of 0.8. Stock Y has an expected return of 20%, a standard deviation of 40% and a beta of 0.3, and a correlation with stock X of 0.6. Assume the CAPM holds. a. If you are a typical, risk-averse investor with a well-diversified portfolio, which stock would you prefer? b. What are the expected return and standard deviation of a portfolio consisting of 30% of stock X...
8. Effects of portfolio size on portfolio rislk Aa Aa E The following graph plots portfolio...
8. Effects of portfolio size on portfolio rislk Aa Aa E The following graph plots portfolio risk against the size of the portfolio as measured by the number of stocks in the portfolio. (Hint: Hover the mouse over the graph to read the coordinates.) PORTFOLIO RISK 50 40 30 40, 28 20 10 10 20 30 40 50 60 70 80 90 100 NUMBER OF STOCKS IN THE PORTFOLIO Based on the data presented on the previous graph, which of...
Assume that you are holding a well-diversified portfolio in which the expected returns on your portfolio...
Assume that you are holding a well-diversified portfolio in which the expected returns on your portfolio resemble the expected market returns in the last problem. If you add CRU to your investment portfolio, the new portfolio will be comprised of 20% ofCRU and 80% of the old portfolio. What is the new portfolio's expected return? If you added WT instead of CRU, what would be the expected return on the portfolio? 9.52%: 9.44% You are considering investing in one of...
The following graph plots portfolio risk against the size of the portfolio as measured by the...
The following graph plots portfolio risk against the size of the portfolio as measured by the number of stocks in the portfolio. (Hint: Hover the mouse over the graph to read the coordinates.) PORTFOLIO RISK 0 15 30 45 60 75 90 105 120 135 150 NUMBER OF STOCKS IN THE PORTFOLIO Based on the data presented in the previous graph, which of the following statements are true? Check all that apply. A portfolio of 60 stocks has a diversifiable...
You have the following data on three stocks: Stock Standard Deviation Beta A 20% 0.59 B...
You have the following data on three stocks: Stock Standard Deviation Beta A 20% 0.59 B 14% 0.64 C 10% 1.29 You are a very conservative investor and wish to minimize risk in your investments. If you were to hold only one (1) stock in your investment account you would choose Stock ____. If, however, you were adding to an already well-diversified portfolio you would choose Stock ____ .
A stock's standard deviation indicates how the stock affects the riskiness of a diversified portfolio. Therefore, the st...
A stock's standard deviation indicates how the stock affects the riskiness of a diversified portfolio. Therefore, the standard deviation is a better measure of a stock's relevant risk than its beta coefficient, which measures total, or stand-alone, risk. True False
Please answer
The benchmark for a well-diversified stock portfolio is the market portfolio, which is a portfolio containing all stocks. The relevant risk of an individual stock is measured by its beta coefficient, which is defined under the Capital Asset Pricing Model (CAPM) as the amount of risk that the stock contributes to the well-diversified portfolio. Based on your understanding of the CAPM and beta, answer the following question: Which of the following statements about stock's correlation with the market...
To solve this problem, note that a well-diversified portfolio should lie on the Capital Market Line. The market portfolio has an expected return of 11.5 percent and a standard deviation of 19 percent. The risk-free rate is 4.1 percent. a. What is the expected return on a well-diversified portfolio with a standard deviation of 9 percent? b. What is the standard deviation of a well-diversified portfolio with an expected return of 20 percent?
Stock X has an expected return of 15%, standard deviation of 20%, beta of 0.8. Stock Y has an expected return of 20%, a standard deviation of 40% and a beta of 0.3, and a correlation with stock X of 0.6. Assume the CAPM holds. a. If you are a typical, risk-averse investor with a well-diversified portfolio, which stock would you prefer? b. What are the expected return and standard deviation of a portfolio consisting of 30% of stock X...
8. Effects of portfolio size on portfolio rislk Aa Aa E The following graph plots portfolio risk against the size of the portfolio as measured by the number of stocks in the portfolio. (Hint: Hover the mouse over the graph to read the coordinates.) PORTFOLIO RISK 50 40 30 40, 28 20 10 10 20 30 40 50 60 70 80 90 100 NUMBER OF STOCKS IN THE PORTFOLIO Based on the data presented on the previous graph, which of...
Assume that you are holding a well-diversified portfolio in which the expected returns on your portfolio resemble the expected market returns in the last problem. If you add CRU to your investment portfolio, the new portfolio will be comprised of 20% ofCRU and 80% of the old portfolio. What is the new portfolio's expected return? If you added WT instead of CRU, what would be the expected return on the portfolio? 9.52%: 9.44% You are considering investing in one of...
The following graph plots portfolio risk against the size of the portfolio as measured by the number of stocks in the portfolio. (Hint: Hover the mouse over the graph to read the coordinates.) PORTFOLIO RISK 0 15 30 45 60 75 90 105 120 135 150 NUMBER OF STOCKS IN THE PORTFOLIO Based on the data presented in the previous graph, which of the following statements are true? Check all that apply. A portfolio of 60 stocks has a diversifiable...
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