Question

In: Finance

You are given the following information about Stocks A and B: Rate of Return if State...

You are given the following information about Stocks A and B:

Rate of Return if State Occurs

State of Economy

Probability of
State of Economy

Stock A

Stock B

Boom

0.30

22%

17%

Normal

0.50

16%

7%

Recession

0.20

-3%

2%

Stock A has a beta of 1.5 and Stock B has a beta of 1.2.

  1. What is the beta of a portfolio consisting of 60% of Stock A and 40% of Stock B?
  1. What is the expected return of a portfolio consisting of 60% of Stock A and 40% of Stock B?

  1. Which stock has a greater return variance?

Solutions

Expert Solution


Related Solutions

Consider the following information about Stocks A and B: Rate of Return if State Occurs State...
Consider the following information about Stocks A and B: Rate of Return if State Occurs State of Probability of Economy State of Economy Stock A Stock B Recession 0.26 0.03 − 0.34 Normal 0.56 0.20 0.14 Irrational exuberance 0.18 0.09 0.54 The market risk premium is 5 percent, and the risk-free rate is 3 percent. (Round your answers to 2 decimal places. (e.g., 32.16)) The standard deviation on Stock A's return is percent, and the Stock A beta is ....
Consider the following information about three stocks:    Rate of Return If State Occurs   State of...
Consider the following information about three stocks:    Rate of Return If State Occurs   State of Probability of   Economy State of Economy Stock A Stock B Stock C   Boom .20 .38 .50 .50   Normal .55 .16 .14 .12   Bust .25 .00 ?.30 ?.50    a-1 If your portfolio is invested 30 percent each in A and B and 40 percent in C, what is the portfolio expected return? (Do not round intermediate calculations. Enter your answer as a percent rounded...
Consider the following information about three stocks:    Rate of Return If State Occurs   State of...
Consider the following information about three stocks:    Rate of Return If State Occurs   State of Probability of   Economy State of Economy Stock A Stock B Stock C   Boom .26 .32 .44 .56   Normal .50 .13 .11 .09   Bust .24 .04 −.25 −.45    a-1 If your portfolio is invested 40 percent each in A and B and 20 percent in C, what is the portfolio expected return? (Do not round intermediate calculations. Enter your answer as a percent rounded...
Consider the following information about three stocks:    Rate of Return If State Occurs   State of...
Consider the following information about three stocks:    Rate of Return If State Occurs   State of Probability of   Economy State of Economy Stock A Stock B Stock C   Boom .20 .28 .40 .56   Normal .45 .22 .20 .18   Bust .35 .00 −.20 −.48    a-1. If your portfolio is invested 30 percent each in A and B and 40 percent in C, what is the portfolio expected return? (Do not round intermediate calculations and enter your answer as a percent...
Consider the following information about three stocks:    Rate of Return If State Occurs   State of...
Consider the following information about three stocks:    Rate of Return If State Occurs   State of Probability of   Economy State of Economy Stock A Stock B Stock C   Boom .20 .26 .38 .50   Normal .50 .10 .08 .06   Bust .30 .01 −.20 −.40    a-1 If your portfolio is invested 30 percent each in A and B and 40 percent in C, what is the portfolio expected return? (Do not round intermediate calculations. Enter your answer as a percent rounded...
Consider the following information about three stocks:    Rate of Return If State Occurs   State of...
Consider the following information about three stocks:    Rate of Return If State Occurs   State of Probability of   Economy State of Economy Stock A Stock B Stock C   Boom .20 .28 .40 .56   Normal .45 .22 .20 .18   Bust .35 .00 −.20 −.48    a-1 If your portfolio is invested 30 percent each in A and B and 40 percent in C, what is the portfolio expected return? (Do not round intermediate calculations. Enter your answer as a percent rounded...
Consider the following information about Stocks I and II: Rate of Return if State Occurs   State...
Consider the following information about Stocks I and II: Rate of Return if State Occurs   State of Probability of   Economy State of Economy Stock I Stock II   Recession .26 .05 − .31   Normal .50 .22 .11   Irrational exuberance .24 .05 .51 The market risk premium is 5 percent, and the risk-free rate is 3 percent. The standard deviation on Stock I's expected return is______percent, and the Stock I beta is_____.The standard deviation on Stock II's expected return is______percent, and the...
Consider the following information about Stocks I and II: Rate of Return If State Occurs State...
Consider the following information about Stocks I and II: Rate of Return If State Occurs State of Probability of Economy State of Economy Stock I Stock II Recession .30 .04 ?.19 Normal .50 .16 .06 Irrational exuberance .20 .05 .39 The market risk premium is 8 percent, and the risk-free rate is 5 percent. (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16. Enter your return answers as a percent. ) The standard deviation on...
Consider the following information about Stocks I and II: Rate of Return If State Occurs State...
Consider the following information about Stocks I and II: Rate of Return If State Occurs State of Probability of Economy State of Economy Stock I Stock II Recession .30 .08 −.27 Normal .45 .19 .14 Irrational exuberance .25 .13 .47 The market risk premium is 8 percent, and the risk-free rate is 6 percent. (Do not round intermediate calculations. Enter your standard deviation answers as a percent rounded to 2 decimal places, e.g., 32.16. Round your beta answers to 2...
You have been given the following information:    Rate of Return If State Occurs   State of...
You have been given the following information:    Rate of Return If State Occurs   State of Probability of   Economy State of Economy Stock A Stock B   Recession .16 .05 − .16   Normal .62 .08 .13   Boom .22 .13 .30    a. Calculate the expected return for the two stocks. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. Calculate the standard deviation for the two stocks. (Do not round...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT