Question
In: Finance
Consider the following information on a portfolio of three stocks: &
Consider the following information on a portfolio of three stocks:
|
Rate of Return |
||||
|
State of Economy |
Probability of State Occurring |
Stock A (%) |
Stock B (%) |
Stock C (%) |
|
Boom |
.05 |
7 |
15 |
28 |
|
Normal |
.80 |
9 |
12 |
17 |
|
Bust |
.15 |
10 |
2 |
−35 |
The portfolio is invested 40 percent in each of Stock A and Stock B and the rest in Stock C.
- Which of the three stocks has the lowest risk? Why?
- What is the expected return on this portfolio? If the T-bill rate is 4.03 percent, what is the expected risk premium on the portfolio?
- What is the standard deviation of returns on the portfolio?
Solutions
jeff jeffy answered 2 years agoRelated Solutions
Consider the following information on a portfolio of three stocks: &
Consider the following information on a portfolio of three
stocks:
Rate of Return
State of
Economy
Probability of
State Occurring
Stock A
(%)
Stock B
(%)
Stock C
(%)
Boom
.15
7
15
28
Normal
.70
9
12
17
Bust
.15
10
2
−35
The portfolio is invested 40 percent in each of Stock A and
Stock B and the rest in Stock C.
Which of the three stocks has the lowest risk? Why?
What is the expected return...
Portfolio returns and deviations. Consider the following information on a portfolio of three stocks: State of...
Portfolio returns and deviations. Consider the following
information on a portfolio of three stocks:
State of
Probability
of
Stock A Rate of return Stock B
ROR Stock C ROR
Economy
State of Economy
Boom
.15
.02
.32
.60
Normal
.60
.10
.12
.20
Bust
.25
.16
-.11
-.35
a. If your portfolio is invested 40 percent each in A and B and
20 percent in C, what is the portfolio's expected return? the
variance? the standard deviation?
b. if...
Consider the following information on a portfolio of three stocks: State of Probability of Stock A...
Consider the following information on a portfolio of three
stocks:
State of
Probability of
Stock A
Stock B
Stock C
Economy
State of Economy
Rate of Return
Rate of Return
Rate of Return
Boom
.12
.09
.34
.53
Normal
.53
.17
.19
.27
Bust
.35
.18
−
.18
−
.37
a. If your portfolio is invested 36 percent
each in A and B and 28 percent in C, what is the portfolio’s
expected return, the variance, and the standard deviation?...
Consider the following information on a portfolio of three stocks: State of Economy Probability of State...
Consider the
following information on a portfolio of three stocks:
State of
Economy
Probability
of
State of Economy
Stock A
Rate of Return
Stock B
Rate of Return
Stock C
Rate of Return
Boom
.15
.04
.33
.55
Normal
.60
.09
.13
.19
Bust
.25
.15
–.14
–.28
a.
If your portfolio is invested 40 percent each in A and B and 20
percent in C, what is the portfolio’s expected return? The
variance? The standard deviation? (Do not...
Type or paste question here Consider the following information on a portfolio of three stocks: State...
Type or paste question here
Consider the
following information on a portfolio of three stocks:
State of
Economy
Probability
of
State of Economy
Stock A
Rate of Return
Stock B
Rate of Return
Stock C
Rate of Return
Boom
.13
.04
.34
.58
Normal
.53
.12
.14
.22
Bust
.34
.18
–.13
–.37
a.
If your portfolio is
invested 36 percent each in A and B and 28 percent in C, what is
the portfolio’s expected return, the variance, and...
Consider a portfolio consisting of the following three stocks: Portfolio Weight Volatility Correlation with Market Portfolio...
Consider a portfolio consisting of the following three
stocks:
Portfolio Weight
Volatility
Correlation with Market Portfolio
HEC Corp
0.26
13%
0.35
Green Midget
0.29
28%
0.52
Alive And Well
0.45
11%
0.54
The volatility of the market portfolio is 10% and it has an
expected return of 8%. The risk-free
rate is 3%.
Compute the beta and expected return of each stock.
Using your answer from part (a), calculate the expected return
of the portfolio.
What is the beta of...
Consider the following information for three stocks, Stocks A, B, and C. The returns on the...
Consider the following information for three stocks, Stocks A,
B, and C. The returns on the three stocks are positively
correlated, but they are not perfectly correlated. (That is, each
of the correlation coefficients is between 0 and 1.)
Stock
Expected Return
Standard Deviation
Beta
A
7.94
16
0.7
B
9.62
16
1.1
C
11.72
16
1.6
Fund P has one-third of its funds invested in each of the three
stocks. The risk-free rate is 5%, and the market is...
Consider the following information for Stocks A, B, and C. The returns on the three stocks...
Consider the following information for Stocks A, B, and C. The
returns on the three stocks are positively correlated, but they are
not perfectly correlated. (that is, each of the correlation
coefficients is between 0 and 1).
Stock Expected Return Standard Deviation Beta
A 9.55% 15.00% 0.9
B 10.45% 15.00% 1.1
C 12.70% 15.00% 1.6
Fund P has one-third of its funds invested in each of the
three stocks. The risk-free rate is 5.5%, and the market is in
equilibrium....
Consider the following information for stocks A, B, and C. The returns on the three stocks...
Consider the following information for stocks A, B, and C. The
returns on the three stocks are positively correlated, but they are
not perfectly correlated. (That is, each of the correlation
coefficients is between 0 and 1.)
Stock
Expected Return
Standard Deviation
Beta
A
9.35%
15%
0.7
B
12.65
15
1.3
C
14.85
15
1.7
Fund P has one-third of its funds invested in each of the three
stocks. The risk-free rate is 5.5%, and the market is in
equilibrium....
Consider the following information for stocks A, B, and C. The returns on the three stocks...
Consider the following information for stocks A, B, and C. The
returns on the three stocks are positively correlated, but they are
not perfectly correlated. (That is, each of the correlation
coefficients is between 0 and 1.)
Stock
Expected Return
Standard Deviation
Beta
A
8.65%
16%
0.7
B
10.45
16
1.1
C
12.25
16
1.5
Fund P has one-third of its funds invested in each of the three
stocks. The risk-free rate is 5.5%, and the market is in
equilibrium....
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