Question
In: Finance
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. (That is, the required returns equal expected
returns.)
a) What is the market risk premium?
b) What is the beta of Fund P?
c) What is the required return of Fund P?
d) Would you expect the standard deviation of the Fund P to be
less than 1%, equal to 15%, or greater than 15%? Explain.
Solutions
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Answer:
jeff jeffy answered 2 years agoRelated Solutions
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
9.35%
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....
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
8.75%
14%
0.9
B
9.75
14
1.3
C
10.75
14
1.7
Fund P has one-third of its funds invested in each of the three
stocks. The risk-free rate is 6.5%, and the market is in
equilibrium....
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
9.34
%
14
%
0.8
B
11.26
14
1.2
C
13.18
14
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...
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
9.69%
14%
0.9
B
10.92
14
1.2
C
12.56
14
1.6
Fund P has one-third
of its funds invested in each of the three stocks. The risk-free
rate is 6%, and the market is in equilibrium....
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 8.01 % 15 % 0.7
B 10.16 15 1.2
C 11.88 15 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...
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
8.01
%
15
%
0.7
B
10.16
15
1.2
C
11.88
15
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...
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
9.10
%
15
%
0.8
B
10.45
15
1.1
C
12.70
15
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...
Consider the following information on Stocks A, B, C and their returns (in decimals) in each...
Consider the following information on Stocks A, B, C and their
returns (in decimals) in each state: State Prob. of State A B C
Boom 20% 0.33 0.2 0.14 Good 45% 0.13 0.12 0.07 Poor 25% 0.02 0.01
0.03 Bust 10% -0.09 -0.04 -0.02 If your portfolio is invested 25%
in A, 40% in B, and 35% in C, what is the standard deviation of the
portfolio in percent? Answer to two decimals, carry intermediate
calcs. to at least four...
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