User Account

All Pages

What are the betas of stocks x and y

Assignment Help Finance Basics
Reference no: EM13909750

1. Required Rate of Return
AA Industries stock has a beta of 0.8. The risk-free rate is 4% and the expected return on the market is 12%. What is the required rate of return on AA's stock?

2. Portfolio Required Return

Suppose you manage a $4 million fund that consists of four stocks with the following investments:

Stock                           Investment                 Beta______________

   A                                 $  400,000                   1.50

   B                                    600,000                    -0.50

   C                                 1,000,000                   1.25

   D                                 2,000,000                   0.75

If the market's required rate of return is 14% and the risk-free rate is 6%, what is the fund's required rate of return?

3. Historical Realized Rates of Return

You are considering an investment in either individual stocks or a portfolio of stocks. The two stocks you are researching, stock A and B, have the following historical returns:

Year                            rA                               rB_________

2009                            -20.00%                       -5.00%

2010                            42.00%                        15.00%

2011                            20.00%                        -13.00%

2012                            -8.00%                         50.00%

2013                            25.00%                        12.00%

a. Calculate the average rate of return for each stock during the 5-year period.

b. Suppose you had held a portfolio consisting of 50% of Stock A and 50% of Stock B. What would have been the realized rate of return on the portfolio in each year? What would have been the average return o the portfolio during this period?

c. Calculate the standard deviation of returns for each stock and for the portfolio.

d. If you are a risk-averse investor, then, assuming these are your only choices, would you prefer to hold Stock A, Stock B, or the portfolio? Why?

4. Historical Returns: Expected and Required Rates of Return

You have observed the following returns over time:

Year                Stock X                       Stock Y                       Market_____

2009                14%                             13%                             12%

2010                19                                7                                  10

2011                -16                               -5                                 -12

2012                3                                  1                                  1

2013                20                                11                                15

Assume that the risk-free rate is 6% and the market risk premium is 5%.

a. What are the betas of Stocks X and Y?

b. What are the required rates of return on Stock X and Y?

c. What is the required rate of return on a portfolio consisting of 80% of Stock X and 20% of Stock Y?

5. Two-Asset Portfolio

Stock A has an expected return of 12% and a standard deviation of 40%. Stock B has an expected return of 18% and a standard deviation of 60%. The correlation coefficient between Stock A and B is 0.2. What are the expected return and standard deviation of a portfolio invested 30% in Stock A and 70% in Stock B?

Reference no: EM13909750

Questions Cloud

How do the largest us stock markets differ : How do the largest U.S. stock markets differ? Out of those choices, which would be the smartest private investment option, in your opinion? Why
The following refers to units processed in sunfllower : Compute the total equivalent units of production with respect to labor for March using the weighted average inventory method.
Generate a series of pseudo random numbers : You will write a program to generate a series of pseudo random numbers, using a linear feedback shift register method. You will start with an arbitrary number (not zero) x with a representation in n bits.
Compute the total equivalent units of production : Compute the total equivalent units of production with respect to labor for July using the weighted average inventorymethod.
What are the betas of stocks x and y : Stock A has an expected return of 12% and a standard deviation of 40%. Stock B has an expected return of 18% and a standard deviation of 60%. The correlation coefficient between Stock A and B is 0.2. What are the expected return and standard de..
Transferred completed products with a cost : Prepare journal entries to record the following production activities.
What is a characteristic polynomial : What is A's characteristic polynomial? What are A's eigenvalues? For each eigenvalue identified in (b), find a corresponding eigenvector. In each case, show your working
Laffer lumber produces bagged bark for use in landscaping : Laffer Lumber produces bagged bark for use in landscaping.
Horizontal analysis of income statement and balance sheet : Horizontal Analysis of Income Statement and Balance Sheet.Prepare a three-year horizontal analysis of the income statement and balance sheet of your selected company. Discuss the importance and meaning of horizontal analysis. Discuss both the positiv..

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd