20. Consider the following expected returns, volatilities, and correlations: Expected Return Stock Duke Energy 14% Microsoft 44% Wal-Mart 23% Standard Deviation 6% 24% 14% Correlation with Energy 1.0 -1.0 0.0 Duke Correlation with Microsoft -1.0 1.0 0.7 Correlation with Wal-Mart 0.0 0.7 1.0 Consider a portfolio consisting of only Duke Energy and Microsoft. The percentage of your investment (portfolio weight) that you would place in Duke Energy stock to achieve a risk-free investment would be closest to?

20. Consider the following expected returns, volatilities, and correlations: Expected Return Stock Duke Energy 14% Microsoft 44% Wal-Mart 23% Standard Deviation 6% 24% 14% Correlation with Energy 1.0 -1.0 0.0 Duke Correlation with Microsoft -1.0 1.0 0.7 Correlation with Wal-Mart 0.0 0.7 1.0 Consider a portfolio consisting of only Duke Energy and Microsoft. The percentage of your investment (portfolio weight) that you would place in Duke Energy stock to achieve a risk-free investment would be closest to?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Consider the following covariances between securities: Duke Microsoft Wal-Mart Duke 0.0568 -0.0193 0.0037 Microsoft -0.0193 0.2420 0.1277 Wal-Mart 0.0037 0.1277 0.1413 What is the variance on a portfolio that is made up of $6000 investments in Microsoft and a $4000 investment in Wal-Mart stock?
An analyst gathers the following data: * Expected (estimated) rate of return on the market = 15% * Risk Free Rate = 8% * Expected (estimated) rate of return on stock X = 17% * Stock X's beta = 1.75 Using these data and the capital asset pricing model, which of the following statements about X's stock is true? Stock X is: a. properly valued b. overvalued by 1.75% c. undervalued by 1.40% d. undervalued by 0.25%
Here are some historical data on the risk characteristics of Ford and Harley Davidson. Ford Harley Davidson β (beta) 1.43 0.75 Yearly standard deviation of return (%) 33.3 16.9 Assume the standard deviation of the return on the market was 12.0%. a. The correlation coefficient of Ford’s return versus Harley Davidson is 0.38. What is the standard deviation of a portfolio invested half in each share? b. What is the standard deviation of a portfolio invested one-third in Ford, one-third in Harley Davidson, and one-third in risk-free Treasury bills? c. What is the standard deviation if the portfolio is split evenly between Ford and Harley Davidson and is financed at 50% margin, that is, the investor puts up only 50% of the total amount and borrows the balance from the broker? d-1. What is the approximate standard deviation of a portfolio composed of 100 stocks with betas of 1.43 like Ford? d-2. What is the approximate standard deviation of a portfolio composed of…
An investment analyst estimates the following probabilities of return depending on the state of the economy. Business conditions Boom Good Normal Recession Poor Probability 0.05 0.25 0.40 0.25 0.05Petronas share return % 12 10 4 -2 -7Maxis share return % 26 12 8 -6 -22Berjaya share return % 41 23 12 -27 -55Compute the Expected risk of the above shares?
What is the expected return of an equally weighted portfolio comprised of the following three stocks? State ofEconomy Probability ofState of Economy Rate of Returnif State Occurs Stock A Stock B Stock C Boom .25 .19 .13 .07 Normal .72 .15 .05 .13 Bust .03
4. Consider the following expected returns, risks, and correlations: Stock Expected Return Standard Deviation Correlation with British Gas Correlation with Vodafone Correlation with John Lewis British Gas 14% 6% 1.0 -1.0 0.0 Vodafone 44% 24% -1.0 1.0 0.7 John Lewis 23% 14% 0.0 0.7 1.0 The risk of a portfolio that is equally invested in British Gas and Vodafone is closest to ________. A. 8.1% B. 9.0% C. 10.8% D. 5.4%
Use the following forecasted financials: (Certain cells were left intentionally blank by asker) You may need to use the CAPM model. Assume beta equals 1.09, the risk-free rate is 1.62%, and the market risk premium is 4.72%. d) Calculate the terminal value and the present value of the terminal value. Assume a long-term growth rate of 3%. e) Calculate Sherwin Williams value per share. The company has 263.3 million shares outstanding.
17. Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT? A B Required return 10% 12% Market price $25 $40 Expected growth 7% 9% a. These two stocks must have the same dividend yield. b. These two stocks must have the same expected year-end dividend. c. These two stocks must have the same expected capital gains yield. d. These two stocks should have the same expected return. e. These two stocks should have the same price.
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Consider a world where there are only two risky investments: ABC Ltd and XYZ Inc. stocks.No. of shares Price per share Expected return SD of the return.ABC Ltd 1000 R20 30% 60%XYZ Inc 1000 R10 8% 10%Section 4.8. Practice Exercises Page 57The correlation between the returns of these two stocks is 0.5.a) What is the market portfolio in this world?b) What are the expected return and standard deviation of returns of the market portfolio?c) Find the beta coefficient of ABC Ltd
An investment analyst estimates the following probabilities of return depending on the state of the economy. Business conditions Boom Good Normal Recession Poor Probability 0.05 0.25 0.40 0.25 0.05 Petronas share return % 12 10 4 -2 -7 Maxis share return % 26 12 8 -6 -22 Berjaya share return % 41 23 12 -27 -55 Compute the expected rate of return and Expected risk of the above shares What are their Shape Ratios?

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