Question

In: Finance

"The characteristics of two stocks traded in the economy are as follows: Stock A, expected return=13%,...

"The characteristics of two stocks traded in the economy are as follows: Stock A, expected return=13%, standard deviation=60%; Stock B, expected return=8%, standard deviation=40%. Correlation between A and B is -1. If the market risk premium is 4%, what is the expected return for a portfolio with a beta of 1.5 in a CAPM universe?"

16%

15%

14%

None of the above

Solutions

Expert Solution

Correct answer: 16%

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

"The characteristics of two stocks traded in the economy are as follows: Stock A, expected return=13%,...
"The characteristics of two stocks traded in the economy are as follows: Stock A, expected return=13%, standard deviation=60%; Stock B, expected return=8%, standard deviation=40%. Correlation between A and B is -1. If the market risk premium is 4%, what is the expected return for a portfolio with a beta of 3 in a CAPM universe?" 15% 18% 22% None of the above
1. Consider two stocks, Stock D, with an expected return of 13 percent and a standard...
1. Consider two stocks, Stock D, with an expected return of 13 percent and a standard deviation of 26 percent, and Stock I, an international company, with an expected return of 16 percent and a standard deviation of 43 percent. The correlation between the two stocks is -0.5. What is the weight of stock D in the minimum variance portfolio? (Do not round intermediate calculations. Round your answers to 4 decimal places.) 2. Consider two stocks, Stock D, with an...
1. Consider two stocks, Stock D, with an expected return of 13 percent and a standard...
1. Consider two stocks, Stock D, with an expected return of 13 percent and a standard deviation of 33 percent, and Stock I, an international company, with an expected return of 16 percent and a standard deviation of 40 percent. The correlation between the two stocks is 0.2. What is the weight of stock D in the minimum variance portfolio? (Do not round intermediate calculations. Round your answers to 4 decimal places.) 2. Consider two stocks, Stock D, with an...
There are three economy situations and two stocks. Information is as follows. Economy Stock A Stock...
There are three economy situations and two stocks. Information is as follows. Economy Stock A Stock B Booming 0.3 10% 20% Neutral 0.3 5% 0% Recession 0.4 0% -10% a. What are the expected returns for both stock A and B, respectively? b. What is the standard deviation/ risk for stock A? c. What is the portfolio return given that you have $10,000 and allocate $4,000 in stock A?
Expected return on two stocks for two particular market returns: Market Return Aggressive Stock Defensive Stock...
Expected return on two stocks for two particular market returns: Market Return Aggressive Stock Defensive Stock 2% -5% 3% 22% 35% 15% a. What are the betas of the two stocks? b. What is the expected rate of return on each stock if the market return is equally likely to be 2% or 22%? c. If the T-bill rate is 3% and the market return is equally likely to be 2% or 22%, draw the SML for this economy. d....
state of the economy probability of occurrence expected return on stock A expected return on stock...
state of the economy probability of occurrence expected return on stock A expected return on stock B High growth 0.1 60% 5% Moderate growth 0.2 20% 20% No growth 0.5 10% 5% Recession 0.2 -25% 0% 1)Calculate the weighted average of the standard deviation of individual stocks A and B ; and show that each portfolio standard deviation is less than this weighted average except the portfolio standard deviation with correlation of 1. 2) Given correlation of -1, what portfolio...
You are forming a portfolio with two stocks. The first stock has an expected return of...
You are forming a portfolio with two stocks. The first stock has an expected return of 15% and a standard deviation of 20%. The second stock has an expected return of 10% and a standard deviation of 15%. The two stocks have a correlation of 0.5. If you want to form the portfolio by investing $1000 in the first stock and $3000 in the second stock, what is the expected return and standard deviation of the portfolio? Lastly, use the...
What is the Standard deviation ? Consider two stocks, Stock D, with an expected return of...
What is the Standard deviation ? Consider two stocks, Stock D, with an expected return of 13 percent and a standard deviation of 31 percent, and Stock I, an international company, with an expected return of 16 percent and a standard deviation of 42 percent. The correlation between the two stocks is –0.10. What are the expected return and standard deviation of the minimum variance portfolio? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2...
Expected return on two stocks for two particular market returns: Market return/Aggressive stock/Defensive St        4%                 &nbsp
Expected return on two stocks for two particular market returns: Market return/Aggressive stock/Defensive St        4%                     -5%                         6%        20%                   30%                       15% a. What are the beta's of the two stocks? b. What is the expected rate of return on each stock if the market return is equally likely to be 4% or 20%? c. If the t-bill rate is 5% and the market return is equally likely to be 4% or 20%, draw the SML for this economy. please...
Consider two stocks, Stock D, with an expected return of 20 percent and a standard deviation...
Consider two stocks, Stock D, with an expected return of 20 percent and a standard deviation of 35 percent, and Stock I, an international company, with an expected return of 8 percent and a standard deviation of 23 percent. The correlation between the two stocks is −.21. What are the expected return and standard deviation of the minimum variance portfolio? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT