1. The table below shows the expected rates of return for three stocks and their weight in some portfolio:
Stock A | Stock B | Stock C | |
Expected return | 0.05 | 0.03 | 0.13 |
Weight | 0.5 | 0.2 | 0.3 |
a. What is the expected portfolio return?
2. You've assembled the following portfolio:
Stock | Expected return | Portfolio weight |
1 | 6.1% | 30% |
2 | 13.6% | |
3 | 17.3% |
a. What is the weight for stock 3 if you want to achieve an expected portfolio return of 15%?
3. You've assembled the following portfolio:
Stock | Exp. return | Investment |
1 | 7.9% | $3,000 |
2 | 11.3% | $12,000 |
3 | 18.9% | $8,000 |
a. What is the expected return of the portfolio?
4. You've recorded the following historical annual returns for a stock:
Year | Return |
1 | 8% |
2 | 2% |
3 | -14% |
4 | 3% |
5 | 7% |
a. What was the expected standard deviation of returns?
5. Which of the following statements are true about the capital allocation line (CAL)?
Check all that apply:
The CAL represents all portfolios with the same standard deviation but different expected returns.
An investor can increase their reward-to-volatility ratio by borrowing funds and investing more in risky assets (using leverage).
The slope of the capital allocation line is called the Sharpe ratio.
An investor can increase their expected return by borrowing funds and investing more in risky assets (using leverage).
The CAL represents all portfolios with the same expected return but different standard deviations.
1. The table below shows the expected rates of return for three stocks and their weight...
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