6. My. Sy wants to find a new investment for his portfolio. He is looking for a safe investment that provides stable returns. He considers the following options for investment: Stocks: He was offered a stock of ABC Corp. It is a mature company with strong operational and financial performance. The volatility (standard deviation or sd) of the stock is 10% and the expected return (mean) is 14% Exchange-Traded Fund(ETF): The ETF with strong financial performance offers an expected return (mean) of 13% with a volatility (standard deviation or sd) of 7% Bonds: Bonds with excellent credit ratings offer an expected return of 3% with 2% volatility. What do you think is the most suitable investment opportunity for Mr. Sy? Why? (show your solution) Note: In order to select the most suitable investment opportunity, you have to calculate the coefficient of variation for each option using

6. My. Sy wants to find a new investment for his portfolio. He is looking for a safe investment that provides stable returns. He considers the following options for investment: Stocks: He was offered a stock of ABC Corp. It is a mature company with strong operational and financial performance. The volatility (standard deviation or sd) of the stock is 10% and the expected return (mean) is 14% Exchange-Traded Fund(ETF): The ETF with strong financial performance offers an expected return (mean) of 13% with a volatility (standard deviation or sd) of 7% Bonds: Bonds with excellent credit ratings offer an expected return of 3% with 2% volatility. What do you think is the most suitable investment opportunity for Mr. Sy? Why? (show your solution) Note: In order to select the most suitable investment opportunity, you have to calculate the coefficient of variation for each option using

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 12P

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Similar questions

An analyst has modeled the stock of a company using the Fama-French three-factor model. The market return is 10%, the return on the SMB portfolio (rSMB) is 3.2%, and the return on the HML portfolio (rHML) is 4.8%. If ai = 0, bi = 1.2, ci = 20.4, and di = 1.3, what is the stock’s predicted return?
PART A,B and C are completed. need help in D and E. TIA Unique vs. Market Risk. The figure below shows plots of monthly rates of return on three stocks versus the stock market index. The beta and standard deviation of each stock is given besides its plot. A. Which stock is riskiest to a diversified investor? B. Which stock is riskiest to an undiversified investor who puts all her funds in one of these stocks? C. Consider a portfolio with equal investments in each stock. What would this portfolio’s beta have been? D. Consider a well-diversified portfolio made up of stocks with the same beta as Exxon. What are the beta and standard deviation of this portfolio’s return? The standard deviation of the market portfolio’s return is 20 percent. E. What is the expected rate of return on each stock? Use the capital asset pricing model with a market risk premium of 8 percent. The risk-free rate of interest is 4 percent.
Recently, Kellie determined that the required rate of return for Stock Q is 11 percent. In her analysis she determined that the risk-free rate of return, r is 4 percent and that the required return on the market portfolio, r is 9 percent. Today, however, Kellie received new information that indicates the market risk premium, RP is actually 1 percent higher than she estimated in her original analysis. Based on this new information, what should be the required rate of return for Stock Q?
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Assume that when investing in the risky portfolio, the investor must choose between just two risky assets: an equity fund and a corporate bond fund. The equity fund has an expected return of 35% and a standard deviation of 28%. The corporate bond fund has an expected return of 15% and a standard deviation of 15%. The equity fund and the corporate bond fund returns have a correlation of 0.30. The treasury bill rate is 6%. Suppose that the investor invests 61.31% of his allocation to the risky portfolio in the equity fund, and therefore 38.69% to the corporate bond fund. Assume that theses weights correspond to those of the optimal risky portfolio". Assume that the investor's risk aversion coefficient (A) equals 7.00. What is the composition of, expected return and standard deviation of the optimal risky portfolio?
You are working on creating a portfolio that mimics a fully diversified market index.Assume that you have $1 million fund to invest. You plan to allocate $195,000 and $365,000of your fund to invest in stock A and B, respectively. To achieve your goal, you need to add anadditional risky stock C and a risk-free bond to your portfolio. How much would you invest instock C and risk-free bond?