Question
In: Finance
Three securities have the following expected returns and beta: Securities Return Beta A 10% 0.65 B...
Three securities have the following expected returns and
beta:
| Securities | Return | Beta |
| A | 10% | 0.65 |
| B | 18% | 1.37 |
| C | 25% | 0.22 |
a) Calculate the expected return of a portfolio if all the
securities are held equally.
b) Given the standard deviation for the securities A, B, and C is
12%, 14% and 18% while its covariance is 60, 20, and -30
respectively, estimate the standard deviation of this
portfolio.
c) Based on the risk-return relation, redesign the securities
holding proportion in the manner that it rebalances the portfolio
risk to maximize its return.
Solutions
jeff jeffy answered 2 years agoRelated Solutions
You have the following information about three securities A, B, and C: Security Expected return Beta...
You have the following information about three securities A, B,
and C:
Security
Expected return
Beta
A
24%
2.0
B
7%
0.5
C
2%
0
Given this information, you can definitely conclude that:
A.
All three securities are underpriced
B.
A, B, and C are fairly priced
C.
At least two of the three securities are mispriced
D.
At least one of A, B, or C is mispriced
You are given the following table: Securities Weight Beta Expected return Variance of return 1 0.3...
You are given the following table:
Securities
Weight
Beta
Expected return
Variance of return
1
0.3
0.6
0.7
0.06
2
0.4
0.8
0.9
0.08
3
0.3
1.1
1
0.13
Variance of market portfolio return = 0.07
Given the assumption of a single factor model, calculate the
following:
The residual variance of each of the above stocks;
The expected return on this 3-stock portfolio;
The beta factor of this 3-stock portfolio;
The variance of this 3-stock portfolio.
Stock A has a beta of 1.5 and an expected return of 10%. Stock B has...
Stock A has a beta of 1.5 and an expected return of 10%. Stock B
has a beta of 1.1 and an expected return of 8%. The current market
price for stock A is $20 and the current market price for stock B
is $30. The expected return for the market is 7.5%. (assume the
risk free asset is a T-bill).
8- What is the risk free rate?
A) 0.25%
B) 1.25%
C) 2.00%
D) 2.50%
E) None of the...
Investments A, B, and C all have the following characteristics: A B C Expected Return 10%...
Investments A, B, and C all have the following
characteristics:
A
B
C
Expected Return
10%
10%
10%
Standard Deviation
8%
8%
8%
Skewness
1.5
0.4
-0.8
Excess Kurtosis
-0.6
0
1.2
For an investor who is most concerned about not losing
principal, the best investment and the worst investment are likely
to be, respectively:
A.) A the best and B the worst
B.) B the best and A the worst
C.) B the best and C the worst
D.)...
You are given the following information on two securities. Security Expected Return Standard Deviation of Returns...
You are given the following information on two securities.
Security
Expected Return
Standard Deviation of Returns
A
10.0%
14.0%
B
16.0%
12.0%
The correlation between the returns on the two securities is
+0.6. The standard deviation of returns of a portfolio earning an
expected return of 14.0 percent is closest to:
Group of answer choices
A 11.4%.
B 9.3%.
C 27.1%.
D 12.7%.
EXPECTED RETURNS Stocks A and B have the following probability distributions of expected future returns: Probability...
EXPECTED RETURNS
Stocks A and B have the following probability distributions of
expected future returns:
Probability
A
B
0.1
(8%)
(21%)
0.2
6
0
0.4
10
24
0.2
24
30
0.1
36
49
Calculate the expected rate of return, rB, for Stock
B (rA = 12.80%.) Do not round intermediate calculations.
Round your answer to two decimal places.
%
Calculate the standard deviation of expected returns,
σA, for Stock A (σB = 18.87%.) Do not round
intermediate calculations. Round your...
EXPECTED RETURNS Stocks A and B have the following probability distributions of expected future returns: Probability...
EXPECTED RETURNS
Stocks A and B have the following probability distributions of
expected future returns:
Probability
A
B
0.2
(14%)
(35%)
0.2
4
0
0.3
12
20
0.2
18
29
0.1
30
42
Calculate the expected rate of return, rB, for Stock
B (rA = 8.20%.) Do not round intermediate calculations.
Round your answer to two decimal places.
%
Calculate the standard deviation of expected returns,
σA, for Stock A (σB = 25.07%.) Do not round
intermediate calculations. Round your...
EXPECTED RETURNS Stocks A and B have the following probability distributions of expected future returns: Probability...
EXPECTED RETURNS
Stocks A and B have the following probability distributions of
expected future returns:
Probability
A
B
0.2
(11%)
(27%)
0.2
3
0
0.3
11
21
0.2
22
27
0.1
40
41
A.Calculate the expected rate of return, rB, for
Stock B (rA = 10.10%.) Do not round intermediate
calculations. Round your answer to two decimal places.
%
B.Calculate the standard deviation of expected returns,
σA, for Stock A (σB = 22.00%.) Do not round
intermediate calculations. Round your...
EXPECTED RETURNS Stocks A and B have the following probability distributions of expected future returns: Probability...
EXPECTED RETURNS
Stocks A and B have the following probability distributions of
expected future returns:
Probability
A
B
0.1
(14%)
(29%)
0.2
3
0
0.4
13
23
0.2
24
27
0.1
35
37
Calculate the expected rate of return, rB, for Stock
B (rA = 12.70%.) Do not round intermediate calculations.
Round your answer to two decimal places.
%
Calculate the standard deviation of expected returns,
σA, for Stock A (σB = 18.47%.) Do not round
intermediate calculations. Round your...
Expected returns Stocks A and B have the following probability distributions of expected future returns: Probability...
Expected returns
Stocks A and B have the following probability distributions of
expected future returns:
Probability
A
B
0.2
-10%
-39%
0.2
6
0
0.3
11
21
0.2
20
27
0.1
36
44
Calculate the expected rate of return, rB, for Stock
B (rA = 10.10%.) Do not round intermediate calculations.
Round your answer to two decimal places.
%
Calculate the standard deviation of expected returns,
σA, for Stock A (σB = 26.59%.) Do not round
intermediate calculations. Round your...
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