Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 25% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 4%. Calculate the expected return and variance of portfolios invested in T-bills and the S&P 500 index with weights as shown below. (Enter your answers as decimals rounded to 4 places. Leave no cells blank - be certain to enter "O" wherever required.) WBills WIndex Expected Return Variance 0.0 1.0 0.1200 0.0625 Example 0.2 0.8 0.4 0.6 0.6 0.4 0.8 0.2 1.0 0.0

Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 25% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 4%. Calculate the expected return and variance of portfolios invested in T-bills and the S&P 500 index with weights as shown below. (Enter your answers as decimals rounded to 4 places. Leave no cells blank - be certain to enter "O" wherever required.) WBills WIndex Expected Return Variance 0.0 1.0 0.1200 0.0625 Example 0.2 0.8 0.4 0.6 0.6 0.4 0.8 0.2 1.0 0.0

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 14P

See similar textbooks

Similar questions

The following table reports the percentage of stocks in a portfolio for nine quarters: a. Construct a time series plot. What type of pattern exists in the data? b. Use trial and error to find a value of the exponential smoothing coefficient that results in a relatively small MSE. c. Using the exponential smoothing model you developed in part (b), what is the forecast of the percentage of stocks in a typical portfolio for the second quarter of year 3?
Your client has decided that the risk of the bond portfolio is acceptable and wishes to leave it as it is. Now your client has asked you to use historical returns to estimate the standard deviation of Blandy’s stock returns. (Note: Many analysts use 4 to 5 years of monthly returns to estimate risk, and many use 52 weeks of weekly returns; some even use a year or less of daily returns. For the sake of simplicity, use Blandy’s 10 annual returns.)
Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 38% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 5%. Calculate the expected return and variance of portfolios invested in T-bills and the S&P 500 index with weights as shown below. (Enter your answers as decimals rounded to 4 places. Leave no cells blank - be certain to enter "0" wherever required.) WBills: WIndex: Expected Return: Variance: 0.0 1.0 0.1300 0.1444 Example 0.2 0.8 0.4 0.6 0.6 0.4 0.8 0.2 1.0 0.0
An analyst wants to evaluate Portfolio X, consisting entirely of U.S. common stocks, using both the Treynor and Sharpe measures of portfolio performance. The following table provides the average annual rate of return for Portfolio X, the market portfolio (as measured by the Standard and Poor’s 500 Index), and U.S. Treasury bills (T-bills) during the past eight years. Rate Annual Averageof Return STANDARD DEVIATION OF RETURN BETA Portfolio X 10 13 0.40 S&P 500 12 10 1.00 T-bills 7 n/a n/a n/a = not applicable Calculate both the Treynor measure and the Sharpe measure for both Portfolio X and the S&P 500. Round your answers for the Treynor measure to one decimal place and for the Sharpe measure to three decimal places. Treynor measure Sharpe measure Portfolio X 7.5 S&P 500 5
The stock of Jones Trucking is expected to return 16 percent annually with a standard deviation of 7 percent. The stock of Bush Steel Mills is expected to return 21 percent annually with a standard deviation of 13 percent. The correlation between the returns from the two securities has been estimated to be +0.4. The beta of the Jones stock is 1.1, and the beta of the Bush stock is 1.4. The risk-free rate of return is expected to be 6 percent, and the expected return on the market portfolio is 16 percent. The current dividend for Jones is $5. The current dividend for Bush is $7. What is the expected return from a portfolio containing the two securities if 30 percent of your wealth is invested in Jones and 70 percent is invested in Bush? Round your answer to one decimal place. % What is the expected standard deviation of the portfolio of the two stocks? Round your answer to two decimal places. % Which stock is the better buy in the current market? Round your answers to one decimal…
The stock of Jones Trucking is expected to return 16 percent annually with a standard deviation of 7 percent. The stock of Bush Steel Mills is expected to return 21 percent annually with a standard deviation of 13 percent. The correlation between the returns from the two securities has been estimated to be +0.4. The beta of the Jones stock is 1.1, and the beta of the Bush stock is 1.4. The risk-free rate of return is expected to be 6 percent, and the expected return on the market portfolio is 16 percent. The current dividend for Jones is $5. The current dividend for Bush is $7. What is the expected return from a portfolio containing the two securities if 30 percent of your wealth is invested in Jones and 70 percent is invested in Bush? Round your answer to one decimal place. % What is the expected standard deviation of the portfolio of the two stocks? Round your answer to two decimal places. % Which stock is the better buy in the current market? Round your answers to one decimal…
The analysts at FNB forecasted that the return on DJIA index portfolio over the coming year will be 14%. The one year T-Bill rate is 6%. While examining the recent returns of the DJIA index, the analysts estimated that the variance of these returns will be 12.4%. What is the degree of the risk aversion for the average investor, assuming the average portfolio resembles the DJIA index
Assuming the below annual rates of return: Annual Rates of Return: Wamart - 12.36% Coca Cola - 25.51% Pfizer - 14% CVS - 32.99% Berkshire Hathaway - 29.66% Assume that you initially invested $1,000,000 in the portfolio and that the distribution of the annual rate of return of the portfolio is normal. What is the distribution of the return of the portfolio 20 years after its formation? Provide the graph of the distribution of the return of the portfolio.
Consider a portfolio consisting of $ 10 million invested in the S&P 500 and $ 7.5 million invested in U.S treasury bonds. The S&P 500 has an expected return of 14% and a standard deviation of 16%. The treasury bonds have an expected return of 9% and a standard deviation of 8%. The correlation between the S&P 500 and Bonds is 0.35. All figures are stated on an annual basis. Find the VAR for one year at a probability of 5%. Identify and use the most appropriate method given the information you have. Using the information, you obtained in part a, find VAR for one day.
A portfolio with a 25% standard deviation generated a return of 15% last year when T-bills were paying 4.5%. This portfolio had a Sharpe ratio of ____.
A portfolio with a 25% standard deviation generated a return of 15% last year when T-bills were paying 4.5%. This portfolio had a Sharpe measure of ____.
Suppose that the standard deviation of returns on each individual stock is 80% per annum and that the covariance between each pair of stocks is 0.25. What is the annual standard deviation of an equally weighted well - diversified portfolio?