Question
In: Finance
You have observed the following returns over time: Year Stock X Stock Y Market 2011 15...
You have observed the following returns over time:
Year Stock X Stock Y Market
2011 15 % 14 % 12 %
2012 20 7 8
2013 -13 -4 -12
2014 3 1 1
2015 21 11 14
Assume that the risk-free rate is 4% and the market risk
premium is 6%. The data has been collected in the Microsoft Excel
Online file below. Open the spreadsheet and perform the required
analysis to answer the questions below.
What is the beta of Stock X? Do not round intermediate
calculations. Round your answer to two decimal places.
What is the beta of Stock Y? Do not round intermediate
calculations. Round your answer to two decimal places.
What is the required rate of return on Stock X? Do not round
intermediate calculations. Round your answer to one decimal
place.
%
What is the required rate of return on Stock Y? Do not round
intermediate calculations. Round your answer to one decimal
place.
%
What is the required rate of return on a portfolio consisting
of 80% of Stock X and 20% of Stock Y? Do not round intermediate
calculations. Round your answer to one decimal place.
Solutions
Expert Solution
| Year | X | Y | Market |
| 2011 | 15.00% | 14.00% | 12.00% |
| 2012 | 20.00% | 7.00% | 8.00% |
| 2013 | -13.00% | -4.00% | -12.00% |
| 2014 | 3.00% | 1.00% | 1.00% |
| 2015 | 21.00% | 11.00% | 14.00% |
| Variance of Market Data | 0.011 | 0.011 | |
| Covariance | 0.015 | 0.007 | |
| Beta | 1.312 | 0.662 | |
| Risk Free Rate | 4.00% | ||
| Market Risk Premium | 6.00% | ||
| Expected Return through CAPM | 11.87% | 7.97% | |
| Weights | 80.00% | 20.00% | |
| Portfolio Return | 11.09% |
Formulaes:-
Excel Formulaes of Variance:- =VAR.S(Data)
Excel Formula for Covariance:- =COVARIANCE.S(Stock Data, Market Data)
Beta Formula:- Covariance / Variance
Required Rate of Return of A:- Risk Free Rate + Beta of Stock A * Market Risk Premium
Portfolio Return:- Weight of Stock A * Required Rate of Return A + Weight of Stock B * Required Rate of Return B
Using above formulaes:-
1. 1.312
2. 0.662
3. 11.87%
4. 7.97%
5. 11.09%
jeff jeffy answered 3 years agoRelated Solutions
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