Question

ID: A -firm's returns? (Hint: This is a sample, over the last 3 years are shown below. What's the standard deviation of the not a complete population, so the sample standard deviation formula should be used.) Year Return 2011 21.00% 2010-12.50 2009 22.50% 17.02% 17.61% 18.40% 18.60% 19.79% a. b. C. d. 24. Taggat lne's stock has a 50% chance of pod cing a 28% retum, a 30% chance ofproducing a 10% return, 8.66% 10.60% 11.40% 10.03% 11.97% a. b. c. d. 25. Jim Angel holds a $200,000 portfolio consisting of the following stocks: Stosk Investment Beta $50,000 0.80 $50,000 0.80 $50,000 1.00 $50,000 1.20 $200,000 Total What is the portfolio's beta? a 0.817 b 1.083 c. 0.798 0.732 ッ0.950 Kollo Enterprises has a beta of 0.82, the real risk-free rate is 2.00%, investors expect a 3.00% future inflation rate, and the market risk premium is 4.70%. What is Kollo's required rate of return? 26, 6.73% 6.64% 9.30% 9.56% 8.85% b. С. d. e.

Answer 1

23) Option- E

1 Yea Returns Deviation from mean Square of deviation 2011| 21.00% 2010-12.50% 2009| 22.50% 31.00% 10.33% 0.1067 0.2283 0.1217 0.0114 0.0521 0.0148 0.0783 5 Summ 6 Average return (Mean) 7 8 Variance 9 Standard deviation 10 (Square of variance 0.31/3 (0.0783/(3-1) 0.0392 19.79%

24) Option- C

Expected Rate of Return = (Probability * Return on stock) + (Probability * Return on stock) + (Probability * Return on stock)

Expected Rate of Return = (0.50 * 28%) + (0.30 * 10%) + (0.20 * -28%)

Expected Rate of Return = 0.14 + 0.03 - 0.056

Expected Rate of Return = 0.114 or 11.4%

25) Option- E

The portfolio beta can be calculated by multiplying weight of different stocks with their respective betas and adding all the values. The weight of each stock in the portfolio can be calculated by dividing the value of a particular with the total portfolio value.

The formula for calculating portfolio beta is:

Portfolio Beta = Weight of Stock A*Beta of Stock A + Weight of Stock B*Beta of Stock B + Weight of Stock C*Beta of Stock C + Weight of Stock D*Beta of Stock D

Weight of Stock = Value of Investment in a Particular Stock/Total Portfolio Value

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Using the values provided in the question, we get,

Weight of Stock A = 50,000/200,000 = .25

Weight of Stock B = 50,000/200,000 = .25

Weight of Stock C = 50,000/200,000 = .25

Weight of Stock D = 50,000/200,000 = .25

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Using these weights and values of beta in the formula for portfolio beta, we get,

Portfolio Beta = .25*.80 + .25*.80 + .25*1 + .25*1.20 = .950 (which is Option E)

26) Option - E

Please find the detailed answer as follows:

Rate of Return (Without Adjustment for Inflation) = Risk Free Rate + Beta*MRP = 2 + .82*4.70 = 5.854

Rate of Return (After Adjustment for Inflation) = 5.854 + 3 = 8.854% or 8.85%