Question

In: Finance

You have a portfolio worth $86,000 that has an expected return of 11.2 percent. The portfolio...

You have a portfolio worth $86,000 that has an expected return of 11.2 percent. The portfolio has $17,800 invested in Stock O, $25,600 invested in Stock P, with the remainder in Stock Q. The expected return on Stock O is 15.5 percent and the expected return on Stock P is 12 percent. What is the expected return on Stock Q?

Multiple Choice

8.92%
9.60%
10.27%
11.20%
12.97%

Expert Solution

Total Amount invested in the portfolio = $86000

Stock O

Amount invested in stock P = $17800

Weight of stock O in the portfolio = WO = Amount invested in stock O/Amount invested in the portfolio = 17800/86000 = 0.206976744186047

Expected return on stock O = E[RO] = 15.5%

Stock P

Amount invested in stock P = $25600

Weight of stock P in the portfolio = WP = Amount invested in stock P/Amount invested in the portfolio = 25600/86000 = 0.297674418604651

Expected return on stock P = E[RP] = 12%

Stock Q

Amount invested in stock Q = $8600 - $17800 - $25600 = 42600

Weight of stock Q in the portfolio = WQ = Amount invested in stock Q/Amount invested in the portfolio = 25600/86000 = 0.495348837209302

Expected return on stock Q = E[RP]

Portfolio

Expected return of the portfolio = E[RP] = 11.2%

Expected return of the portfolio is calculate using the formula:

Expected return of Portfolio = E[RP] = WO*E[RO] + WP*E[RP] + WQ*E[RQ]

11.2% = 0.206976744186047*15.5% + 0.297674418604651*12% + 0.495348837209302*E[RQ]

11.2% = 0.0320813953488372 + 0.0357209302325581 + 0.495348837209302*E[RQ]

11.2% = 0.0678023255813954 + 0.495348837209302*E[RQ]

0.495348837209302*E[RQ] = 0.0441976744186046

E[RQ] = 0.0441976744186046/0.495348837209302 = 8.9225352112676% ~ 8.92% (Rounded to two decimals)

Expected return on stock Q = E[RQ] = 8.92%

Answer -> 8.92%

jeff jeffy answered 1 year ago

You have a portfolio worth $101,000 that has an expected return of 11.8 percent. The portfolio...

You have a portfolio worth $101,000 that has an expected return of 11.8 percent. The portfolio has $18,400 invested in Stock O, $26,200 invested in Stock P, with the remainder in Stock Q. The expected return on Stock O is 16.1 percent and the expected return on Stock P is 13 percent. What is the expected return on Stock Q?

You have a three-stock portfolio. Stock A has an expected return of 16 percent and a...

You have a three-stock portfolio. Stock A has an expected return of 16 percent and a standard deviation of 41 percent, Stock B has an expected return of 20 percent and a standard deviation of 46 percent, and Stock C has an expected return of 15 percent and a standard deviation of 46 percent. The correlation between Stocks A and B is .30, between Stocks A and C is .20, and between Stocks B and C is .05. Your portfolio...

You have a three-stock portfolio. Stock A has an expected return of 17 percent and a...

You have a three-stock portfolio. Stock A has an expected return of 17 percent and a standard deviation of 38 percent, Stock B has an expected return of 20 percent and a standard deviation of 56 percent, and Stock C has an expected return of 15 percent and a standard deviation of 38 percent. The correlation between Stocks A and B is 0.30, between Stocks A and C is 0.20, and between Stocks B and C is 0.05. Your portfolio...

You would like to invest $20,000 and have a portfolio expected return of 12 percent. You...

You would like to invest $20,000 and have a portfolio expected return of 12 percent. You are considering two securities, X and Y. X has an expected return of 20 percent and Y has an expected return of 10 percent. How much should you invest in stock X if you invest the balance in stock Y to achieve the 12 percent portfolio return? a) $5,500 b) $4,000 c) $7,000 d) $6,250

The stock of United Industries has a beta a 1.14 and an expected return of 11.2....

The stock of United Industries has a beta a 1.14 and an expected return of 11.2. The risk-free rate of return is 4 percent. What is the expected return on the market?

You have a portfolio with a standard deviation of 25 % and an expected return of...

You have a portfolio with a standard deviation of 25 % and an expected return of 15 %. You are considering adding one of the two stocks in the following table. If after adding the stock you will have 20 % of your money in the new stock and 80 % of your money in your existing portfolio, which one should you add? Expected Return Standard Deviation Correlation with Your Portfolio's Returns Stock A 15% 23% 0.4 Stock B 15%...

You have a portfolio with a standard deviation of 22 % and an expected return of...

You have a portfolio with a standard deviation of 22 % and an expected return of 16 %. You are considering adding one of the two shares in the table below. If after adding the shares you will have 20 % of your money in the new shares and 80 % of your money in your existing portfolio, which one should you add? Expected return Standard deviation Correlation with your portfolio's returns Share A 13% 26% 0.4 Share B 13%...

You have a portfolio with a standard deviation of 30 % and an expected return of...

You have a portfolio with a standard deviation of 30 % and an expected return of 18 %. You are considering adding one of the two stocks in the following table. If after adding the stock you will have 30 % of your money in the new stock and 70 % of your money in your existing portfolio, which one should you add? Expected Return Standard Deviation Correlation with Your Portfolio's Returns Stock A 15% 23% 0.3 Stock B 15%...

You are the manager of a portfolio of risky securities. Your portfolio has an expected return...

You are the manager of a portfolio of risky securities. Your portfolio has an expected return (E(rP)) of 12% and a standard deviation (P) of 18%. The risk free rate (rf) is 6%. The following two clients want to invest some portions of their investment budget in your portfolio and the balance in the risk free asset: Client 1 needs an expected return of 10% from her complete portfolio. Client 2 needs a complete portfolio with a standard deviation of...

Suppose the risk-free rate is 5.2 percent and the market portfolio has an expected return of...

Suppose the risk-free rate is 5.2 percent and the market portfolio has an expected return of 11.9 percent. The market portfolio has a variance of .0482. Portfolio Z has a correlation coefficient with the market of .38 and a variance of .3385 According to the capital asset pricing model, what is the expected return on Portfolio Z? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).) Expected return ????? %