Over the prior year the return and standard deviation of the M portfolio have both increased,...

Over the prior year the return and standard deviation of the M portfolio have both increased, but no other changes have happened. What are the implications of this for Beta and for expected returns?

Expert Solution

When there has been increase in the rate of return and standard definition of a Portfolio in the prior years it will mean that the portfolio has been generating alpha and the portfolio rate of return has been fluctuating to a higher lenghts because of increase of returns, so it can be said that the beta of the stocks will also be going up because the standard definition will be represented the overall risk related to the portfolio as it can be interpreted that when the standard deviation of the portfolio will be going up the overall Beta related to the portfolio will be going up because the beta is measurement of the systematic risk of portfolio and it can also be interpreted that the beta is also the measurement of the volatility of the overall portfolio so these will be needing to increase in the overall risk of the portfolio because the standard deviation has increased significantly.

The increase of Beta will be having an impact on the expected rate of return and it can be seen through the Capital Asset pricing model where the expected rate of return is calculated after consideration of the systematic risk which is projected from the beta, so expected rate of return will also be going higher because the past returns have been higher and on an increasing trend so it will lead to increasing beta as well as increase in the expected rate of return of the portfolio

jeff jeffy answered 2 years ago

You have a portfolio with a standard deviation of 25 % and an expected return of...

You have a portfolio with a standard deviation of 25 % and an expected return of 15 %. You are considering adding one of the two stocks in the following table. If after adding the stock you will have 20 % of your money in the new stock and 80 % of your money in your existing portfolio, which one should you add? Expected Return Standard Deviation Correlation with Your Portfolio's Returns Stock A 15% 23% 0.4 Stock B 15%...

You have a portfolio with a standard deviation of 22 % and an expected return of...

You have a portfolio with a standard deviation of 22 % and an expected return of 16 %. You are considering adding one of the two shares in the table below. If after adding the shares you will have 20 % of your money in the new shares and 80 % of your money in your existing portfolio, which one should you add? Expected return Standard deviation Correlation with your portfolio's returns Share A 13% 26% 0.4 Share B 13%...

You have a portfolio with a standard deviation of 30 % and an expected return of...

You have a portfolio with a standard deviation of 30 % and an expected return of 18 %. You are considering adding one of the two stocks in the following table. If after adding the stock you will have 30 % of your money in the new stock and 70 % of your money in your existing portfolio, which one should you add? Expected Return Standard Deviation Correlation with Your Portfolio's Returns Stock A 15% 23% 0.3 Stock B 15%...

You have a portfolio with a standard deviation of 21% and an expected return of 16%....

You have a portfolio with a standard deviation of 21% and an expected return of 16%. You are considering adding one of the two stocks in the following table. If after adding the stock you will have 20% of your money in the new stock and 80% of your money in your existing portfolio, which one should you add? Expected Return Standard Deviation Correlation with Your Portfolio's Returns Stock A 12% 25% 0.2 Stock B 12% 17% 0.5 What is...

You have a portfolio with a standard deviation of 26% and an expected return of 19%....

You have a portfolio with a standard deviation of 26% and an expected return of 19%. You are considering adding one of the two shares in the table below. If after adding the shares you will have 20% of your money in the new shares and 80% of your money in your existing portfolio, which one should you add? Expected return Standard deviation Correlation with your portfolio's returns Share A 13% 25% 0.4 Share B 13% 17% 0.5 Standard deviation...

You have a portfolio with a standard deviation of 25% and an expected return of 17%....

You have a portfolio with a standard deviation of 25% and an expected return of 17%. You are considering adding one of the two stocks in the following table. If after adding the stock you will have 30% of your money in the new stock and 70% of your money in your existing portfolio, which one should you add? Expected Return Standard Deviation Correlation with Your Portfolio's Returns Stock A 14% 25% 0.2 Stock B 14% 18% 0.6 Standard deviation...

You have a portfolio with a standard deviation of 30 %30% and an expected return of...

You have a portfolio with a standard deviation of 30 %30% and an expected return of 17 %17%. You are considering adding one of the two stocks in the following table. If after adding the stock you will have 20 %20% of your money in the new stock and 80 %80% of your money in your existing portfolio, which one should you add? Expected Return Standard Deviation Correlation with Your Portfolio's Returns Stock A 1616 % 2121 % 0.20.2 Stock...

Calculate the expected return and standard deviation of the portfolio.

A portfolio consists of two stocks: Stock Expected Return Standard Deviation Weight Stock 1 10% 15% 0.30 Stock 2 13% 20% ??? The correlation between the two stocks’ return is 0.50 Calculate the expected return and standard deviation of the portfolio. Expected Return: Standard Deviation: (i) Briefly explain, in general, when there would be “benefits of diversification” (for any portfolio of two securities). (ii) Describe whether the above portfolio would...

Portfolio A has an expected return of 10% per year and a standard deviation of 20%...

Portfolio A has an expected return of 10% per year and a standard deviation of 20% per year, while the risk-free asset returns 2% per year. a. What is the expected return of a portfolio consisting the risk-free asset and portfolio A that has a standard deviation of 15%? b. What is the portfolio weight on A of a portfolio consisting the risk-free asset and portfolio A that has a standard deviation of 15%? c. What is the standard deviation...

Portfolio Average Return Standard Deviation Beta A &nb

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

Question