Stock A has an expected return of 12 percent and a standard deviation of 14 percent. Stock B has an expected return of 15 percent and a standard deviation of 16 percent. The correlation between them is 0.4. Portfolio Percentage in A Percentage in B 1 25 75 2 50 50 3 75 25 b) Calculate the expected return and the standard deviation for the minimium variance portfolio. c) If the risk-free rate is 8%, which one of the portfolios is the market portfolio according to the CAPM? (Which portfolio has the hightes Sharpe ratio?) D)Base on your calculations above, draw the portfolio frontier, indicate the effient portfolios, and add the Capital Allocation Line (CAL) (Capital Market Line (CML)).
Q: 3. Understanding the IRR and NPV The net present value (NPV) and internal rate f return (IRR)…
A: Capital budgeting process is used to evaluate the profitability of the projects using time value of…
Q: Suppose your firm is seeking a three-year, amortizing $400,000 loan with annual payments, and your…
A: Compensating balance refers to the minimum balance needs to be maintained in the bank savings…
Q: Balloons By Sunset (BBS) is considering the purchase of two new hot air balloons so that it can…
A: Accounting rate of return refers to the return which is to be calculated by taking average annual…
Q: Susan is using the binomial model, she observes a stock currently selling and estimates it will…
A: Call option is derivative product and derive value from underlying stocks and gives option to buy…
Q: H ($8,500,000) $3,100,000 19.33% 5 + $3,100,000 Ŝ ($3,900,000) $4,850,000 55 CFg $2,950,000
A: MIRR is modified of internal rate of return in which it is assumed that reinvestment rate is…
Q: Peaceful Cruises wants to build a new cruise ship that has an initial investment of $300 million. It…
A: Note : As per guideline we can solve only one question at a time so kindly post the other questions…
Q: Even though most corporate bonds in the United States make coupon payments semiannually, bonds…
A: The current worth of the bond issued by Company G at given values can be found by using the PV…
Q: ou would like to be holding a protective put position on the stock of XYZ Company to lock in a…
A: Protective put options are the shield provided to the owner of the stocks to ensure the selling…
Q: one way to improve a companys cash conversion cycle is to increase its days sales outstanding true…
A: In this question, we are required to determine whether the statement given in the question is true…
Q: What does the option delta refer to? For a standard European put option, draw the graph of the delta…
A: Options are financial instruments that provide the holder the right, but not the obligation, to buy…
Q: a. Determine the NPV for this project. Do not round intermediate calculations. Round your answer to…
A: Net present value is determined by deducting the initial investment from the current value of cash…
Q: The Wildcat Oil Company is trying to decide whether to lease or buy a new computer- assisted…
A: A lease payment refers to a payment made under the terms of a written lease agreement between the…
Q: Burkhardt Corp. pays a constant $15.25 dividend on its stock. The company will maintain this…
A: Share price refers to the price at which the shares are bought and sold in the market by the…
Q: Duo Corporation is evaluating a project with the following cash flows. The company uses a discount…
A: Here,YearCash flows0 $-15,400.001 YearCash flows0 $-15,400.001 $ 6,500.002 $ 7,700.003 $…
Q: A fund manager owns a portfolio of 10 stocks. Explain how the manager can reduce the systematic risk…
A: A fund manager seeking to reduce the systematic risk of a portfolio can employ futures contracts on…
Q: The Burger Joint paid $420 in dividends and $611 in interest expense. The addition to retained…
A: Earnings before interest and taxes = Earnings before tax+Interest expenseNet Income =…
Q: Which of the following is not an example of sovereign risk? a. Changes in tax rates b. Changes…
A: The objective of the question is to identify which of the given options does not represent an…
Q: A cost-cutting project will decrease costs by $67,300 a year. The annual depreciation will be $16,…
A: In this question, we are required to determine the operating cash flow.
Q: You win a 1.8 million dollar lottery prize. You have a choice between recieving the winnings through…
A: Here,Lottery Prize is $1,800,000Time Period is 20 yearsAnnual Interest Rate is 4.4%
Q: You are currently considering an investment in a project in the energy sector. The investment has…
A: The cost of capital represents the cost of raising funds for the firm from the investors. The same…
Q: A key difference between the IRR and the MIRR is a. cash flows are assume be reinvested at the risk…
A: IRR is rate of return at which present value of cash flow is equal to initial investment in the…
Q: Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of…
A: “Since you have posted a question with multiple sub parts, we will provide the solution only to the…
Q: Assume that interest rate parity holds and that 90-day risk-free securities yield 6% in the United…
A: Spot Rate = $1.31 PER EURODomestic Interest Rate = 6% or 0.06Foreign Interest Rate = 6.6% or…
Q: Veggie Burgers, Inc. would like to maintain its cash account at a minimum level of $257,000 but…
A: Given,Minimum level of cash (L) = $257,000Standard deviation of daily cash flows () =…
Q: Consider the following information: State of Probability of Economy State of Economy Boom Good Poor…
A: Portfolio standard deviation refers to the level of variability of the returns achieved by the…
Q: Explain how the internal rate of return and net present value are related. If a project has an NPV…
A: In this question, we are required to determine how IRR and NPV are related and what is the IRR.
Q: You have account paybles: ₤5 m in one year. InterestUS: 6.10% per annum & InterestUK: 9% per annum…
A: Given Information:- Account payable = £5,000,000 due in 1 year - US Interest rate (i$) = 6.10% - UK…
Q: Oriole, Inc., a resort management company, is refurbishing one of its hotels at a cost of…
A: IRR is also known as Internal rate of Return. It is a capital budgeting technique which helps in…
Q: rue or False Contributions to Arizona AND non-Arizona 529 plans of up to $2,000 per year by an…
A: About 529 plans:For contributions made to any state's 529 plan, the state of Arizona provides an…
Q: How would you use cash flow discount method and comparable method (aka relative value method) to…
A: In estimating the intrinsic value of stocks, two commonly employed methods are the Cash Flow…
Q: A homeowner remodeled their kitchen in November 2018. The remodel project included purchasing a…
A: When homeowners invest in property insurance, the coverage basis significantly influences the…
Q: What factor does not go into determining your credit score
A: credit score is very important in getting loan and credit and it shows the ability and history of…
Q: Question: What does ROI stand for in finance? a) Return on Investment b) Risk of Inflation c)…
A: In this question, we are asked to determine the full form of ROI.
Q: Veggie Burgers, Inc. would like to maintain its cash account at a minimum level of $247,000 but…
A: The moment at which an investment or project generates the most cash flow is referred to as the…
Q: Terry has invested $20 000 into a fund with interest at j12 = 18% p.a. What level payment can be…
A: In perpetuity there are payments forever and there is no gap in payments and payments continue…
Q: Project A requires an initial outlay at t = 0 of $3,000, and its cash flows are the same in Years 1…
A: The MIRR of a project refers to the measure of the profitability of the project as it considers that…
Q: save for his retirement. He arranged to have $130 taken out of each of his Diweekly checks; it will…
A: Present value is the equivalent today based on the time and interest rate of future cash flow that…
Q: Otto Company borrows money on January 1 and promises to pay it back in four semiannual payments…
A: The concept of present value implies that money today is worth more than money tomorrow. In other…
Q: If you invest $5,072 in a long-term venture, you will receive $985 per year forever. Assuming your…
A: We will receive $985 forever at 10% (or 0.1). We can use the formula for present value of…
Q: Henrie's Drapery Service is investigating the purchase of a new machine for cleaning and blocking…
A: IRR is the required rate of return for the project to have zero Net Present value.IRR can be…
Q: Consider the following information: Probability of State of Economy .20 .60 .20 Economy Recession…
A: In the given case, we have provided the state of the economy and the probability and the return of…
Q: Anderson International Limited is evaluating a project in Erewhon. The project will create the…
A: NPV (Net Present Value) and IRR (Internal Rate of Return) are two popular financial metrics used to…
Q: A project has the following cash flows: 02 3 1 ⫺$500 $202 ⫺$X $196 45 $350 $451 This project…
A: The objective of the question is to find the cash outflow in Year 2 of a project given the cash…
Q: You hear on the news that the S&P 500 was down 2.5% today relative to the risk-free rate (the…
A: Excess return = -2.5%Beta of Hewlett Packard = 1.2Beta of Proctor and Gamble = 0.5
Q: A new restaurant is ready to open for business. It is estimated that the food cost (variable cost)…
A: Firm's operating breakeven level of sales will be calculated by following formula:-Firm's…
Q: A project has an initial cost of $50,000, expected net cash inflows of $13,000 per year for 7 years,…
A: Initial Cost = i = $50,000Cash Flow = cf = $13,000Time = t = 7 YearsCost of Capital = r = 11%
Q: HT Bowling, Inc is considering the purchase of VOIP phone system. It will require an initial…
A: Equivalent annual cost is the cost of operating and maintaining an asset annually. It is also called…
Q: You invested $6,000 at the end of each half-year for 8 years in an investment fund. If the balance…
A: The time period for investment should align with investors' financial goals and risk tolerance, and…
Q: A capital lease is considered a ____ agreement. a. negotiable b. noncancelable c. maintenance d.…
A: “Hi There, Thanks for posting the questions. As per our Q&A guidelines, must be answered only…
Q: (Related to Checkpoint 7.1) (Expected rate of return and risk) B. J. Gautney Enterprises is…
A: Investment expected return=ΣProbability * Return.
Step by step
Solved in 3 steps with 3 images
- Assume the risk-free rate is r = 3%. Consider the data below:Stock(stock 1, stock 2)Expected Return(15%,7%)Volatility(40%,30%)a) Find the What the minimum variance portfolio when ρ12 = 0? and then computeits expected return and volatility?b) Find the minimum variance portfolio when ρ12= =0.4? and then compute itsexpected return and volatility?c) Determine the tangent portfolios & their respective mean returns and volatilities.An investiment portfolio consists of two securities, X and Y. The weight of X is 30%. Asset X's expected return is 15% and the standard deviation is 28%. Asset Y's expected return is 23% and the standard deviation is 33%. Assume the correlation coefficient between X and Y is 0.37. A. Calcualte the expected return of the portfolio. B. Calculate the standard deviation of the portfolio return. C. Suppose now the investor decides to add some risk free assets into this portfolio. The new weights of X, Y and risk free assets are 0.21, 0.49 and 0.30. What is the standard deviation of the new portfolio?Portfolios A and B are both well-diversified. The risk-free rate is 8%. The return for the market is 10%. Portfolio A has an expected return of 15% and beta of 1.1. Portfolio B has an expected return of 9% and beta of 0.20. Portfolio A's variance is 9%, whilst Portfolio B's variance is 5.5%. Calculate for Portfolio A and Portfolio B the following: 1. Sharpe's Measure, 2. Treynor's Measure, 3. Jensen's Measure. Which is the better portfolio according to each measure?
- Assume the CAPM holds and consider stock X, which has a return variance of 0.09 and a correlation of 0.75 with the market portfolio. The market portfolio's Sharpe ratio is 0.30 and the the risk-free rate is 5%. (a) What is Stock X's expected return? (b) What proportion of Stock X's return volatility (i.e. standard deviation) is priced by the market? Explain why this number is less than 1.Consider the following information for four portfolios, the market, and the risk-free rate (RFR): Portfolio Return Beta SD A1 0.15 1.25 0.182 A2 0.1 0.9 0.223 A3 0.12 1.1 0.138 A4 0.08 0.8 0.125 Market 0.11 1 0.2 RFR 0.03 0 0 Refer to Exhibit 18.6. Calculate the Jensen alpha Measure for each portfolio. a. A1 = 0.014, A2 = -0.002, A3 = 0.002, A4 = -0.02 b. A1 = 0.002, A2 = -0.02, A3 = 0.002, A4 = -0.014 c. A1 = 0.02, A2 = -0.002, A3 = 0.002, A4 = -0.014 d. A1 = 0.03, A2 = -0.002, A3 = 0.02, A4 = -0.14 e. A1 = 0.02, A2 = -0.002, A3 = 0.02, A4 = -0.14The following expected return and the standard deviation of current returns are known: Security (i) Expected Return Standard Deviation βi A 0.20 0.12 1.1 B 0.12 0.10 0.8 T-Bills 0.05 0 0 Market Portfolio 0.20 0.15 1 a) Determine the weights of a portfolio with a standard deviation of 7% created by combining T-Bill and the market portfolio. b) Determine which of A or B is over-valued or undervalued. c) How will you invest $1000 in riskless T-bills and the risky assets in the Market Portfolio to maintain a standard deviation of 10%.
- The following expected return and the standard deviation of current returns are known: Security (i) Expected Return Standard Deviation βi A 0.20 0.12 1.1 B 0.12 0.10 0.8 T-Bills 0.05 0 0 Market Portfolio 0.20 0.15 1 Required: Determine the weights of a portfolio with a standard deviation of 7% created by combining T-Bill and the market portfolio.Following is the portfolio weights, w, percentage expected return in (%), R, vectors and variance-covariance matrix, VC, for a three-asset portfolio: 0.4 12 100 -45 10 w = [0.3], R = [10] and VC = [-45 64 10] 0.3 8 10 10 36 a. Calculate the expected return and standard deviation of the portfolio. b. Suppose an investor requires a target standard deviation of 4% for the portfolio; using the solver function in Excel, find the portfolio weights w to maximise the expected return subject to the constraints Op = 4 and wi + w2 + w3 = 1|A person is interested in constructing a portfolio. Two stocks are being considered. Letx = percent return for an investment in stock 1, and y = percent return for an investment instock 2. The expected return and variance for stock 1 are e(x) = 8.45% and Var(x) = 25.The expected return and variance for stock 2 are e(y) = 3.20% and Var(y) = 1. Thecovariance between the returns is sxy = −3.a. what is the standard deviation for an investment in stock 1 and for an investment instock 2? Using the standard deviation as a measure of risk, which of these stocks isthe riskier investment?
- Given: Calculate the expected returns and expected standard deviations of a two-stock portfolio having a correlation coefficient of 0.70 under the following conditions a. w1 = 1.00 b. w1 = 0.75 c. w1 = 0.50 d. w1 = 0.25 e. w1 = 0.05 Plot the results on a return-risk graph. Without calculations, draw in what the curve would look like first if the correlation coefficient had been 0.00 and then if it had been −0.70.Assume that the covariance between Stock A and Stock B is -28%^2 (0.0028). Compute the expected rate of return and variance of rate of return of Donald’s portfolio.Which statement is correct? The collection of all portfolios that minimize variance for varying levels of expected return is called the efficient frontier. The mean-variance frontier is the top-half of the efficient frontier. The part of efficient frontier with the highest expected return for a given level of variance is called the mean- variance frontier. The collection of all portfolios out of risky asset that minimize variance for varying levels of expected return is shaped like a hyperbola.