2. You expect your mutual fund portfolio to yield and 8% return and anticipate inflation to be 2%. Calculate the inflation adjusted return for your portfolio. (1+Return) Inflation-Adjusted Return 1 (1+Inflation Rate) Inflation Adjusted Return
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- Stock M has a relevant risk equals 1.75, and unsystematic risk equals 2. If the real risk-free rate of interest equals 3 percent, inflation premium equals 2 percent, expected market return equals 11 percent, and the required rate of return on a portfolio consisting of all stocks, which is the market portfolio equals 11 percent, what is Stock M's required rate of return? Interpret your answer.You create a portfolio consisting of $23000 invested in a mutual fund with beta of 1.3, $25000 invested in Treasury Securities (assume risk-free), and $12000 invested in an index fund tracking the market. According to surveys, the expected market risk premium is 6.6%, risk free rate is 1.3%. What is the expected return of this portfolio according to CAPM? Answer in percent, rounded to one decimal place.The quoted rate of the short-term government security is 5% and a 2% premium is added to rate to reflect the market return. What is the required rate of return of the portfolio? (In percentage, put percentage sign) Blue Co. has an investment fund consist of three stocks as follows: STOCK INVESTMENT BETA ABC 500,000 1 DEF 1,250,000 0.8 XYZ 750,000 1.5
- assume that expected return of the stock A in Rachel's portfolio is 13.6% this year.The risk premium on the stock of the same industry are 4.8%.beta of the stock is 1.5 and the inflation rate was 2.7. a)Calculate the risk-free rate of return using capital market asset pricing model please provide the workings for finding risk free rate finding adjusted rate of return(inflation adjusted) finding Risk free rate of return using CAPM modelA portfolio has a duration of 4.75 and a convexity of 30. Approximate the percent change in the portfolio's value if interest rates increase 1%.Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.2 -5% 17% Normal economy 0.6 18 11 Boom 0.2 24 4 Assume a portfolio with weights of 0.60 in stocks and 0.40 in bonds. a. What is the rate of return on the portfolio in each scenario? (Enter your answer as a percent rounded to 1 decimal place.) b. What are the expected rate of return and standard deviation of the portfolio? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
- Suppose you and most other investors expect the inflation rate to be 7%next year, to fall to 5% during the following year, and then to remain ata rate of 3% thereafter. Assume that the real risk-free rate, r*, will remainat 2% and that maturity risk premiums on Treasury securities rise fromzero on very short-term securities (those that mature in a few days) to alevel of 0.2 percentage points for 1-year securities. Furthermore, maturityrisk premiums increase 0.2 percentage points for each year to maturity, upto a limit of 1.0 percentage point on 5-year or longer-term T-notes andT-bonds.a. Calculate the interest rate on 1-, 2-, 3-, 4-, 5-, 10-, and 20-year Treasurysecurities, and plot the yield curve.(Inflation and Interest Rates) What would you expect the nominal rate of interest to be if the real rate is 4 percent and the expected inflation rate is 7 percent? (Expected Rate of Return and Risk) Syntex, Inc. is considering an investment in one of two common stocks. Given the information that follows, which investment is better, based on risk (as measured by the standard deviation) and return? Common Stock A Common Stock B Probability Return Probability Return .30 11% .20 25% .40 15% .30 6% .30 19% .30 14% .20 22% (Common Stock Valuation) Header Motor, Inc., paid a $3.50 dividend last year. At a constant growth rate of 5 percent, what is the value of the common stock if the investors require a 20-percent rate of return? (Preferred Stock Valuation) What is the value of a preferred stock where the dividend rate is 14 percent on a $100 par value? The appropriate discount rate for a stock of this…What return do you expect on a portfolio next year that is currently invested 20% in your stock (with an expected return as computed in c.1) and 80% in an equity mutual fund (which is an investment company that invests into stocks for investors) that has a CAPM expected return of 5.82%? Return in c1= 9.34%
- You create a portfolio consisting of $23000 invested in a mutual fund with beta of 1.3, $25000 invested in Treasury Securities (assume risk-free), and $12000 invested in an index fund tracking the market. According to surveys, the expected market risk premium is 6.6%, Risk-free rate is 1.3%. What is the expected return of this portfolio according to CAPM?Bond valuation related problems should be solved by using a financial calculator or MS excel spreadsheet. Accordingly, you must show the values of all relevant time valu of money variables If D1 = $1.25, g(which is constant) = 4.7%, and Po= $26.00 what is the stocks expected dividend yield for the coming year?Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.2 -4 % 15 % Normal economy 0.7 16 11 Boom 0.1 25 3 Assume a portfolio with weights of 0.60 in stocks and 0.40 in bonds. a. What is the rate of return on the portfolio in each scenario? (Enter your answer as a percent rounded to 1 decimal place.) b. What are the expected rate of return and standard deviation of the portfolio? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) c. Would you prefer to invest in the portfolio, in stocks only, or in bonds only? Explain the benefit of diversification.