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

Expert Solution

I have answered the question below

Please up vote for the same and thanks!!!

Do reach out in the comments for any queries

Answer:

jeff jeffy answered 1 year ago

Next > < Previous

Related 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 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...

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% 0.34 0.2 0.14 Good 45% 0.13 0.09 0.08 Poor 25% 0.01 0.01 0.04 Bust 10% -0.08 -0.03 -0.03 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...

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% 0.32 0.19 0.18 Good 45% 0.16 0.1 0.09 Poor 25% 0.02 0.01 0.03 Bust 10% -0.09 -0.06 -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...

1 pts Consider the following information on Stocks A, B, C and their returns (in decimals)...

1 pts 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% 0.34 0.22 0.14 Good 45% 0.15 0.12 0.09 Poor 25% 0.01 0.02 0.02 Bust 10% -0.09 -0.02 -0.01 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...

Subjects