Question
In: Finance
Consider the following data for the companies Powergas and Supertech: Company Beta Standard Deviation Covariance with...
Consider the following data for the companies Powergas and Supertech:
|
Company |
Beta |
Standard Deviation |
Covariance with Market |
|
Powergas |
? |
45% |
0.0135 |
|
Supertech |
1.6 |
40% |
? |
The expected return on the market index is 15% and the risk free rate of interest is 6%. The standard deviation of the market index is 15%. You can borrow and lend at the risk free rate.
What is the beta of Powergas and the covariance of Supertech with the market portfolio?
What are the correlations between Powergas and the market, and Supertech and the market?
How could you form a portfolio of Powergas and Supertech that has exactly the same expected rate of return as the market?
How could you form a portfolio of Powergas and Supertech that has a expected rate of return of 24%? What is the risk of this portfolio if the correlation between Powergas and Supertech is 0.5?
How could you form a portfolio that has the same expected return as the portfolio formed in part 2d, but lower standard deviation? What is the lowest risk you have to assume for this expected return?
Solutions
jeff jeffy answered 2 years agoRelated Solutions
Covariance and Correlation Based on the following information, calculate the expected return and standard deviation of...
Covariance and Correlation Based on the following information,
calculate the expected return and standard deviation of each of the
following stocks. Assume each state of the economy is equally
likely to happen. What are the covariance and correlation between
the returns of the two stocks?
STATE OF ECONOMY
RETURN ON STOCK A
RETURN ON STOCK B
Bear
Normal
Bull
-.032
.124
.193
-.103
-.025
.469
Covariance and Correlation Based on the following information, calculate the expected return and standard deviation of...
Covariance and Correlation Based on the following information,
calculate the expected return and standard deviation of each of the
following stocks. Assume each state of the economy is equally
likely to happen. What are the covariance and correlation between
the returns of the two stocks?
STATE OF ECONOMY
RETURN ON STOCK A
RETURN ON STOCK B
Bear
Normal
Bull
-.032
.124
.193
-.103
-.025
.469
Consider the following data: (If you want to check data entry, the sample covariance is 80)...
Consider the following data: (If you want to check data entry,
the sample covariance is 80) Can we reject the hypothesis that the
coefficient for Hours is zero with 90% confidence?
Sales
Hours
12
68
9
71
18
120
21
110
18
110
11
90
16
120
Consider the following sample data with mean and standard deviation of 18.1 and 7.4, respectively. (You...
Consider the following sample data with mean and standard
deviation of 18.1 and 7.4, respectively. (You may find it useful to
reference the appropriate table: chi-square table or F table)
Class Frequency Less than 10: 33
10 up to 20: 88
20 up to 30: 69
30 or more "13
n = 203
b-1. Calculate the value of the test statistic. (Round the z
value to 2 decimal places, all other intermediate values to at
least 4 decimal places and...
using examples explain following a)fund beta b)fund standard deviation c) portfolio beta.
using examples explain following a)fund beta b)fund standard
deviation c) portfolio beta.
Neon Corporation’s stock returns have a covariance with the market portfolio of .0345. The standard deviation...
Neon Corporation’s stock returns have a covariance with the
market portfolio of .0345. The standard deviation of the returns on
the market portfolio is 25 percent, and the expected market risk
premium is 8.8 percent. The company has bonds outstanding with a
total market value of $55.13 million and a yield to maturity of 7.8
percent. The company also has 4.63 million shares of common stock
outstanding, each selling for $23. The company’s CEO considers the
current debt–equity ratio optimal....
Neon Corporation’s stock returns have a covariance with the market portfolio of .0345. The standard deviation...
Neon Corporation’s stock returns have a covariance with the
market portfolio of .0345. The standard deviation of the returns on
the market portfolio is 25 percent, and the expected market risk
premium is 8.8 percent. The company has bonds outstanding with a
total market value of $55.13 million and a yield to maturity of 7.8
percent. The company also has 4.63 million shares of common stock
outstanding, each selling for $23. The company’s CEO considers the
current debt–equity ratio optimal....
Neon Corporation’s stock returns have a covariance with the market portfolio of .0455. The standard deviation...
Neon Corporation’s stock returns have a covariance with the
market portfolio of .0455. The standard deviation of the returns on
the market portfolio is 20 percent, and the expected market risk
premium is 7.9 percent. The company has bonds outstanding with a
total market value of $55.04 million and a yield to maturity of 6.9
percent. The company also has 4.54 million shares of common stock
outstanding, each selling for $24. The company’s CEO considers the
current debt–equity ratio optimal....
Neon Corporation’s stock returns have a covariance with the market portfolio of .0385. The standard deviation...
Neon Corporation’s stock returns have a covariance with the
market portfolio of .0385. The standard deviation of the returns on
the market portfolio is 20 percent, and the expected market risk
premium is 9.5 percent. The company has bonds outstanding with a
total market value of $55.2 million and a yield to maturity of 8.5
percent. The company also has 4.70 million shares of common stock
outstanding, each selling for $25. The company’s CEO considers the
current debt–equity ratio optimal....
Portfolio Average Return Standard Deviation Beta A &nb
Portfolio
Average Return Standard
Deviation Beta
A
14.7%
18.6%
1.47
B
8.8
14.2
.78
C
11.2
16.0
1.22
The risk-free rate is 4.5 percent and the market risk
premium is 7 percent.
What is the Treynor ratio of a
portfolio comprised of 30 percent portfolio A, 20 percent portfolio
B, and 50 percent portfolio C?
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