Reference no: EM133043283

Questions -

Q1. What are the portfolio weights for a portfolio that has 156 shares of Stock AB that sell for $45 per share and 130 shares of Stock that sell for $30 per share?

Q2. You own a portfolio that has $3,625 invested in Stock A and $3,530 invested in Stock B. If the expected returns on these stocks are 18 percent and 20 percent, respectively. What is the expected return on the portfolio?

Q3. You own a portfolio that is 34 percent invested in Stock X, 24 percent in Stock Y, and 42 percent in Stock Z. The expected returns on these three stocks are 7 percent, 20 percent, and 16 percent, respectively. What is the expected return on the portfolio?

Q4. You have $22,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 14 percent and Stock Y with an expected return of 13.0 percent. If your goal is to create a portfolio with an expected return of 13.22 percent, how much money will you invest in Stock X? In Stock Y?

Q5. Based on the following information:

State of Economy Probability of State of Economy Rate of Return

if State Occurs Depression 0.07 -0.113

Recession 0.17 0.051

Normal 0.43 0.122

Boom 0.33 0.203

Calculate the expected return.

Calculate the standard deviation.

Q6. You own a stock portfolio invested 35 percent in Stock Q, 25 percent in Stock R, 25 percent in Stock S, and 15 percent in Stock T. The betas for these four stocks are 0.83, 1.21, 1.22, and 1.39, respectively. What is the portfolio beta?

Q7. A stock has a beta of 1.10, the expected return on the market is 12 percent, and the risk-free rate is 10 percent. What must the expected return on this stock be?

Q8. A stock has an expected return of 13.8 percent, the risk-free rate is 4.5 percent, and the market risk premium is 7.5 percent. What must the beta of this stock be?

Q9. A stock has an expected return of 10.5 percent, its beta is 1.1, and the risk-free rate is 5.0 percent. What must the expected return on the market be?

Q10. A stock has an expected return of 15.0 percent, its beta is 1.70, and the expected return on the market is 10.8 percent. What must the risk-free rate be?

Q11. Based on the following information:

State of economy Return on stock A Return on stock B

Bear 0.108 -0.051

Normal 0.109 0.154

Bull 0.079 0.239

Assume each state of the economy is equally likely to happen.

Calculate the expected return of each of the following stocks.

Calculate the standard deviation of each of the following stocks.

What is the covariance between the returns of the two stocks?

What is the correlation between the returns of the two stocks?

Q12. Security F has an expected return of 12.0 percent and a standard deviation of 13 percent per year. Security G has an expected return of 18.6 percent and a standard deviation of 38 percent per year.

a. What is the expected return on a portfolio composed of 30 percent of security F and 70 percent of security G?

b. If the correlation between the returns of security F and security G is 0.50, what is the standard deviation of the portfolio described in part (a)?

Q13. Suppose the expected returns and standard deviations of Stocks A and B are E(RA) = 0.082, E(RB) = 0.142, σA = 0.352, and σB = 0.612.

a-1. Calculate the expected return of a portfolio that is composed of 27 percent A and 73 percent B when the correlation between the returns on A and B is 0.42.

a-2. Calculate the standard deviation of a portfolio that is composed of 27 percent A and 73 percent B when the correlation between the returns on A and B is 0.42.

b. Calculate the standard deviation of a portfolio with the same portfolio weights as in part (a) when the correlation coefficient between the returns on A and B is -0.42.