choosing to invest in these three stocks: Stock A) Beta=1.1 return standard deviation = 25% Stock B) Beta= 3.0 return standard deviatjon = 19% Stock C) Beta= -1.0 return standard deviation= 40% If sally wants to invest half of her portfolio im each of two different stocks, which two stocks should she pick to get a portfolio that earns a return closetst to the market portfolio, assuming all stocks are priced correctly using CAPM? A) A and B B) A and C C) B and C

choosing to invest in these three stocks: Stock A) Beta=1.1 return standard deviation = 25% Stock B) Beta= 3.0 return standard deviatjon = 19% Stock C) Beta= -1.0 return standard deviation= 40% If sally wants to invest half of her portfolio im each of two different stocks, which two stocks should she pick to get a portfolio that earns a return closetst to the market portfolio, assuming all stocks are priced correctly using CAPM? A) A and B B) A and C C) B and C

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 12P

See similar textbooks

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?
What makes for a good investment? Use the approximate yield formula or a financial calculator to rank the following investments according to their expected returns. Buy a stock for $30 a share, hold it for three years, and then sell it for $60 a share (the stock pays annual dividends of $2 a share). Buy a security for $40, hold it for two years, and then sell it for $100 (current income on this security is zero). Buy a one-year, 5 percent note for $1,000 (assume that the note has a $1,000 par value and that it will be held to maturity).
Assume that you’ve just inherited $500,000 and have decided to invest a big chunk of it ($350,000, to be exact) in common stocks. Your objective is to build up as much capital as you can over the next 15 to 20 years, and you’re willing to tolerate a “good deal’’ of risk. What types of stocks (blue chips, income stocks, and so on) do you think you’d be most interested in, and why? Select at least three types of stocks and briefly explain the rationale for selecting each. Would your selections change if you were dealing with a smaller amount of money—say, only $50,000? What if you were a more risk-averse investor?
Johnny holds the following portfolio:Stock Investment BetaA $150,000 1.40B $50,000 0.80C $100,000 1.00D $75,000 1.20Johnny plans to sell Stock A and replace it with Stock E, which has a beta of 0.75. By howmuch will the portfolio beta change? (Please state your answer in 2 decimal points)
You own a portfolio that has a total value of $195,000 and it is invested in Stock D with a beta of .93 and Stock E with a beta of 1.35. The beta of your portfolio is equal to the market beta. What is the dollar amount of your investment in Stock D? Multiple Choice $28,437.50 $16,250.47 $162,500.00 $24,375.23 $32,500.00
You have $122,000 to invest in a portfolio containing Stock X and Stock Y. Your goal is to create a portfolio that has an expected return of 17.6 percent. Stock X has an expected return of 14.0 percent and a beta of 1.26, and Stock Y has an expected return of 9.5 percent and a beta of 1.00. a. How much money will you invest in Stock Y? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) b. What is the beta of your portfolio?
Julie wants to create a $5,000 portfolio. She also wants to invest as much as possible in a high-risk stock with the hope of earning a high rate of return. However, she wants her portfolio to have no more risk than the overall market. Which one of the following portfolios is most apt to meet all her objectives? A. Invest the entire $5,000 in a stock with a beta of 1.0. B. Invest $2,500 in a stock with a beta of 1.98 and $2,500 in a stock with a beta of 1.0. C. Invest $2,500 in a risk-free asset and $2,500 in a stock with a beta of 2.0
Tareen investing company invested equal amount in five stocks to form investment portfolio which has a Beta value 1.2, Tareen is considering to sell the riskiest stock in the portfolio which has Beta co-efficient to 2 and replace it with another stock. If Tareen replace the stock with Beta = 2 with a stock with Beta = 1, what will be the new Beta of his investment portfolio. Assume that equal amount is invested in each stock in the portfolio?
You have $19,256 to invest in a stock portfolio. Your choices are Stock X with an expected return of 13.08 percent and Stock Y with an expected return of 10.37 percent. If your goal is to create a portfolio with an expected return of 12.06 percent, how much money (in $) will you invest in Stock X? Answer to two decimals, carry intermediate calcs. to four decimals.
You are an investor in common stock, and you currently hold a well-diversified portfolio which has an expected return of 12 percent, a beta of 1.2, and a total value of $9,000. You plan to increase your portfolio by buying 100 shares of AT&E at $10 a share. AT&E has an expected return of 20 percent with a beta of 2.0. What will be the expected return and the beta of your portfolio after you purchase the new stock? Group of answer choices ~r(sub p) = 20.0%; βp = 2.00 ~r(sub p) = 12.8%; βp = 1.28 ~r(sub p) = 12.0%; βp = 1.20 ~r(sub p) = 13.2%; βp = 1.40 ~r(sub p) = 14.0%; βp = 1.32
Ms. B has $1000 to invest. She is considering investing in the common stock of company M. In addition, Ms. B will either borrow or lend at the risk-free rate. Ms. B decide to invest $350 in common stock of company M and $650 placed in the risk- free asset. The relevant parameters are 1) What is the expected return? 2) What is the variance of the portfolio? 3) What is the standard deviation of the portfolio?
An investor wishes to add new stocks to her portfolio. She has information about twoassets, Stock A and Stock B. Stock A has a beta of 1.25 and an expected return of 20%.Stock B has a beta of 0.9 and expected return of 15%. The risk-free rate is 4.5% and themarket risk premium is 15%.Which of these stocks, if any, would you advise the investor to purchase?