In: Finance

The standard deviation of the market index portfolio is 10%. Stock A has a beta of 2 and a residual standard deviation of 20%.

A) calculate the total variance for an increase of .10 in its beta.

B) calculate the total variance for an increase of 1% in its residual standard deviation.

**Total variance = (Beta * Standard deviation of market)^2
+ (Residual Standard deviation)^2**

**A)** New Beta = 2 + 0.10 = 2.10

**Total variance =** (2.10 * 10%)^2 + (20%)^2

= 0.21 + 0.04

= 0.25 or 25%

**B)** New residual Standard deviation = 20% + 1% =
21%

**Total variance =** (2 * 10%)^2 + (21%)^2

= 0.20 + 0.0441

= 0.2441 or 24.41%

The standard deviation of the market-index portfolio is 20%.
Stock A has a beta of 2.00, and a residual standard deviation of
30%.
a.Calculate the total variance for increase of 0.10 in its
beta.
b.Calculate the total variance for an increase of 2.62% in its
residual standard deviation.
(Do not round intermediate calculations. Round your answers to
the nearest whole number.)

The standard deviation of the market-index portfolio is 45%.
Stock A has a beta of 1.20 and a residual standard deviation of
55%.
a. Calculate the total variance for an increase of
0.20 in its beta. (Do not round intermediate calculations.
Round your answer to 4 decimal places.)
b. Calculate the total variance for an increase of
8.86% in its residual standard deviation. (Do not round
intermediate calculations. Round your answer to 4 decimal
places.)
I got .6994 for both...

The expected return of market portfolio is 10%. The standard
deviation of market portfolio is 20%. Risk free interest rate is
2%. There is an investor with mean-variance utility
function Answer the following questions.
1) Calculate the optimal weight to be invested in the market
portfolio for the investor with A=5 . Calculate the expected return
and standard deviation of the optimal complete portfolio for the
investor.
2) According to the CAPM, calculate the expected returns of two
stocks (stock 1...

Suppose investors believe that the standard deviation of the
market-index portfolio has increased by 50%. Speculate on two
potential implications of the Security Market Line (SML) and CAPM
regarding the effect of this change on the required rate of return
for a company’s investment projects

stock a has a beta of 1.6 and a standard deviation of 25%. stock
b has a beta of 1.4 and a standard deviation of 20%. portfolio ab
was created by investing in a combination of stocks a and b.
portfolio ab has a beta of 1.25 and a standard deviation of 18%.
which of the following statements is correct?
Stock A has more market risk than Portfolio AB.
Stock A has more market risk than Stock B but less...

Portfolio
Average Return Standard
Deviation Beta
A
14.7%
18.6%
1.47
B
8.8
14.2
.78
C
11.2
16.0
1.22
The risk-free rate is 4.5 percent and the market risk
premium is 7 percent.
What is the Treynor ratio of a
portfolio comprised of 30 percent portfolio A, 20 percent portfolio
B, and 50 percent portfolio C?
SHOW WORK

A stock has an expected return of 1%, a beta of 1.3, and a
standard deviation of 19%. The risk-free rate is 4.5%. What is the
market risk premium?
5.77%
6.11%
5.11%
4.79%
4.29%

Assume the CAPM holds and the return on the market portfolio is
10%, its standard deviation is 10% and the risk-free rate is 5%.
Can each of the following assets exist in equilibrium? Explain.
a) A bond with expected return 0% and standard deviation 1%
b) A put option with expected return 50% and standard deviation
of 100%
c) A stock with an expected return of 10% and the standard
deviation of 9%
d) A call option with Sharpe ratio...

Neon Corporation’s stock returns have a covariance with the
market portfolio of .0345. The standard deviation of the returns on
the market portfolio is 25 percent, and the expected market risk
premium is 8.8 percent. The company has bonds outstanding with a
total market value of $55.13 million and a yield to maturity of 7.8
percent. The company also has 4.63 million shares of common stock
outstanding, each selling for $23. The company’s CEO considers the
current debt–equity ratio optimal....

Neon Corporation’s stock returns have a covariance with the
market portfolio of .0345. The standard deviation of the returns on
the market portfolio is 25 percent, and the expected market risk
premium is 8.8 percent. The company has bonds outstanding with a
total market value of $55.13 million and a yield to maturity of 7.8
percent. The company also has 4.63 million shares of common stock
outstanding, each selling for $23. The company’s CEO considers the
current debt–equity ratio optimal....

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