Estimate investment risk

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1. Suppose the volatility of Dell stock is 0.38 while that of Apple stock is 0.54 while the correlation of Dell with Apple stocks is 0.32. What is the volatility of a portfolio with equal amounts invested in Dell and Apple?

2. Suppose the risk premium is7% while the risk free rate is 3.6% and that Charlie Inc. has a beta of -0.35. What is the required return on Charlie Inc.? Does your answer make sense? Why or why not?

3. Suppose Boots has a beta of 0.7 and Home Depot has a beta of 1.4. The risk free rate is 4% while the market risk premium is 7%. Use the CAPM to determine the expected return of an equally weighted portfolio of Boots and Home Depot.

4. Suppose the expected return and standard deviation of the market portfolio are 11% and 20% respectively. The expected return of security A is 6% .The expected return of security B is 10% and its standard deviation is 18%. A portfolio that invests half of its value in security A and half in security B has a beta of 0.5. Use the CAPM to calculate the specific risk of security B.

5. Summarize three ways to estimate investment risk and specify one way to include risk in investment evaluation.

Reference no: EM132714236

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