Question
In: Finance
Andrew invested $10,000 in Share X and $40,000 in Share Y. The expected returns and variances...
Andrew invested $10,000 in Share X and $40,000 in Share Y. The expected returns and variances of returns on X and Y, and the correlation between their returns are given below.
X Y
EXP RETURN (X)= 00.11
Expected return (Y)= 0.20
VARIANCE (X)= 0.0324 (Y) 0.0576
CORRELATION 0.6
(i) Find the expected return and standard deviation for Andrew’s portfolio. (ii) Assume that the risk-free rate of return is 5% and share Y has the same expected return and risk as the market portfolio. Calculate the beta for Share X and determine if Share X is correctly priced according to the capital asset pricing model (CAPM). (iii) According to CAPM, what will happen to the price of Share X if the rate of inflation is expected to fall by 2 percentage points?
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Using the following returns, calculate the expected returns, the variance, standard deviations and coefficient of variation for X and Y.
Using the following returns, calculate the expected returns,
the variance, standard deviations and coefficient of variation for
X and Y.ProbRxRy0.3512.29.650.30-20.356.512.5Show All in Excel.
Stocks X and Y have the following probability distributions of expected future returns: Probability X Y 0.3 &nb
Stocks X and Y have the following probability distributions of
expected future returns:
Probability X Y
0.3 2% 25%
0.4 12% 20%
0.3 20% 0%
One investor invests 40% in stock X and 60% in stock Y. Calculate
the expected return, standard deviation, and coefficient of
variation Stocks X and Y. Compute the expected rate of return for
the portfolio.
Stocks X and Y have the following probability distributions of expected future returns: Probability X Y 0.3 &nb
Stocks X and Y have the following probability distributions of
expected future returns:
Probability X Y
0.3 2% 25%
0.4 12% 20%
0.3 20% 0%
One investor invests 40% in stock X and 60% in stock Y. Calculate
the expected return, standard deviation, and coefficient of
variation Stocks X and Y. Compute the expected rate of return for
the portfolio.
Using the following returns, calculate the average returns, the variances, and the standard deviations for X...
Using the following returns, calculate the average returns, the
variances, and the standard deviations for X and Y.
(Note that the book covers both the "arithmetic" and the
"geometric" averages. Here, calculate the regular "arithmetic"
average returns. These are the average returns covered in the
course lecture.
Returns
Year
X
Y
1
13 %
23 %
2
31
44
3
20
-10
4
-21
-24
5
22
52
...
Use the following returns for X and Y. Returns Year X Y 1 21.9 % 26.7...
Use the following returns for X and
Y.
Returns
Year
X
Y
1
21.9
%
26.7
%
2
–
16.9
–3.9
3
9.9
28.7
4
19.8
–14.8
5
4.9
32.7
Calculate the average returns for X and Y.
(Do not round intermediate calculations and enter your
answers as a percent rounded to 2 decimal places, e.g.,
32.16.)
Average returns
X
%
Y
%
Calculate the variances for X and Y. (Do
not round intermediate calculations and round your answers...
Use the following returns for X and Y. Returns Year X Y 1 22.0 % 27.0...
Use the following returns for X and Y. Returns Year X Y 1 22.0 %
27.0 % 2 – 17.0 – 4.0 3 10.0 29.0 4 20.0 – 15.0 5 5.0 33.0
Requirement 1: Calculate the average returns for X and Y. (Do not
round intermediate calculations. Enter your answers as a percentage
rounded to 2 decimal places (e.g., 32.16).) Average returns X % Y %
Requirement 2: Calculate the variances for X and Y. (Do not round
intermediate calculations....
1. What is the expected standard deviation of the returns of a portfolio that is invested...
1. What is the expected standard deviation of the returns of a
portfolio that is invested 25 percent in Stock A, 40 percent in
Stock B, and the remainder invested in Stock C? (Hint: create a
column showing the distribution of returns for the portfolio. Then,
find the portfolio's expected return and variance as normally done
for a single asset.)
State of Economy
Probability
Return of A
Return of B
Return of C
Boom
0.20
29%
15%
6%
Normal
0.50...
Stocks X and Y have the following probability distributions of expected returns for four possible economic...
Stocks X and Y have the following probability distributions of
expected returns for four possible economic states.
Economy State
Probability
Stock X
Stock Y
1
0.1
-8%
5%
2
0.4
-10%
8%
3
0.4
9%
-2%
4
0.1
14%
-10%
e. Calculate the two-stock portfolio’s standard deviation.
f. Calculate the two-stock portfolio’s beta.
g. If the overall market return is 8% and the risk-free rate is
1%, what is the two-stock portfolio’s required return?
h. How can you reallocate t
You have estimated the following probability distributions of expected future returns for Stocks X and Y:...
You have estimated the following probability distributions of
expected future returns for Stocks X and Y:
Stock X
Stock Y
Probability
Return
Probability
Return
0.1
-12
%
0.2
4
%
0.2
11
0.2
7
0.2
18
0.3
10
0.2
25
0.1
18
0.3
45
0.2
19
What is the expected rate of return for Stock X? Stock Y? Round
your answers to one decimal place.
Stock X: %
Stock Y: %
What is the standard deviation of expected returns for Stock X?...
Stocks X and Y have the following probability distributions of expected returns for four possible economic...
Stocks X and Y have the following probability distributions of
expected returns for four possible economic states.
Economy State
Probability
Stock X
Stock Y
1
0.1
-8%
5%
2
0.4
-10%
8%
3
0.4
9%
-2%
4
0.1
14%
-10%
Suppose you construct a two-stock portfolio that has $3 million
invested in Stock X and $1 million invested in Stock Y. The beta of
Stock X is 20% higher than the beta of overall stock market. Stock
Y’s beta is...
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