Question

answer all please

The nest three questions (t-3) re haed en the foliowing ble The le sows the probahilinies of each state of nomy, and expected eu of steck A. ock . tock C. EIS Til (wnnuatiredi and market potfolio etum. Hins has decided to build a otolio that is comited of 30s of stock A, 40s of stuck B, and 30s of teck C. Market Ponfolio Return US T-Bill State Probahility Stock D Stock C Stock A States 15% 10.SO% 22.00 13.90% 1/3 7.AY 10% 20.80% 14.00 3% 9.00% 2.60% -15.8O% 1. What is the expected return and standard deviation of the portfolio? A. 5.274: 5,71% B. 6,67%: 8.50% C. 9.47%: 14.07% D. 12.97%: 21.03% 2 What is the beta of this portfolio? A. 0.70 B. 1.07 C. 235 D. 1.60 3. How much retum is expected from this portfolio if market risk premium is 12.00% und risk-free rate is 1.50%? A. 12.20% B. 20.70% C. 12.88% D. 25.45% 4. When you add another stock into your portfolio, your portfolio: A. Should compensate you more B. Should contain more specific risk C. Should contain less specific risk D. Should be a worse portfolio than before

Answer 1

1)

Expected return on stock A = 1/3 * 22% + 1/3* 14% + 1/3* (-9% ) = 9%

Expected return on Stock B = 1/3* 33.9% + 1/3 * 20.8% + 1/3 * -15.8% = 12.97%

Expected return on Stock C = 1/3 * 10.8% + 1/3* 7.6% + 1/3* -2.6% = 5.26%

Expected return on portfolio = 0.3 * 9% + 0.4* 12.97% + 0.3* 5.26% = 9.47%

Answer is C)

2)

Expected return on portfolio = Risk free rate + Beta * Market risk premium

Risk free rate = 1/3* 1% + 1/3 * 2% + 1/3* 3% = 2%

Market risk premium = Market portfolio return - Risk free rate

Market portfolio return = 1/3 * 15% + 1/3 * 10% + 1/3* -5%

= 6.67%

Market risk premium = 6.67% - 2% = 4.67%

9.47% =2% + Beta * 4.67%

7.47% = Beta * 4.67%

Beta = 1.60

Answer is D)

3)

Expected return from portfolio = 1.5% + 1.6* 12% = 20.7%

Answer is B)

4)

Adding another stock could reduce the overall risk of the portfolio

Answer is C)