Radhubhai Consider the following information:Rate of Return if State OccursProbability of StateState of Economyof EconomyStock AStock BStock CBoom.15.35.40.28Good.45.16.17.09Poor.30Bust.10-.01-.10-.03-.12.01-.09a. Your portfolio is invested 30 percent each in A and C, and 40 percent in B. What isthe expected return of the portfolio? (Do not round intermediate calculations andenter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)b-1. What is the variance of this portfolio? (Do not round intermediate calculations andround your answer to 5 decimal places, e.g., .16161.)b-2. What is the standard deviation? (Do not round intermediate calculations and enteryour answer as a percent rounded to 2 decimal places, e.g., 32.16.)a. Expected returnb-1. Variance%b-2. Standard deviation%

a. Expected ReturnThe expected return of the portfolio is 11.80%.Calculation:Expected return (E) =…

Answered: Consider the following information:…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter8: Risk And Rates Of Return

Section: Chapter Questions

Problem 9PROB

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Consider the following information: Rate of Return if State Occurs State of Probability of State Economy of Economy Stock A Stock B Stock C Boom .68 .11 .05 .36 Bust .32 .25 .31 –.16 a. What is the expected return on an equally weighted portfolio of these three stocks? b. What is the variance of a portfolio invested 23 percent each in A and B and 54 percent in C?
Consider the case of two financial assets and three market conditions (states). The tablebelow gives the respective probability for each market condition and the return of each assetin each one of them. Market Conditions State Recession Normal Expansion Probability of state 30% 40% 30% Return of asset A -30% 20% 55% Return of asset B -10% 70% 0% Consider the portfolio with 50% investment in each of the two assets above. Calculatethe expected return and the standard deviation of the portfolio.
Consider the following information about the various states of economy and the returns ofvarious investment alternatives for each scenario. Answer the questions that follow.% Return on T-Bills, Stocks and MarketIndexState of the Economy Probability TBills Phillips PayupRubbermadeMarketIndexRecession 0.2 7 -22 28 10 -13Below Average 0.1 7 -2 14.7 -10 1Average 0.3 7 20 0 7 15Above Average 0.3 7 35 -10 45 29Boom 0.1 7 50 -20 30 43MeanStandard DeviationCoefficient of VariationCovariance with MPCorrelation with Market IndexBetaCAPM Req. ReturnValuation(Overvalued/Undervalued/FairlyValued)Nature of stock(Aggressive/Defensive)Question 1 Fill the parts in the above table that are shaded in yellow. You will notice that there are nineline items. Each line item is worth 2 marksQuestion 2 Using the data generated in the previous question (Question 1);a) Plot the Security Market Line (SML) b) Superimpose the CAPM’s required return on the SML c) Indicate which investments will plot on, above and…
Consider the following information about the various states of economy and the returns ofvarious investment alternatives for each scenario. Answer the questions that follow.% Return on T-Bills, Stocks and MarketIndexState of the Economy Probability TBills Phillips PayupRubbermadeMarketIndexRecession 0.2 7 -22 28 10 -13Below Average 0.1 7 -2 14.7 -10 1Average 0.3 7 20 0 7 15Above Average 0.3 7 35 -10 45 29Boom 0.1 7 50 -20 30 43MeanStandard DeviationCoefficient of VariationCovariance with MPCorrelation with Market IndexBetaCAPM Req. ReturnValuation(Overvalued/Undervalued/FairlyValued)Nature of stock(Aggressive/Defensive)Question 1 Fill the parts in the above table that are shaded in yellow. You will notice that there are nineline items. Question 2 Using the data generated in the previous question (Question 1);a) Plot the Security Market Line (SML) b) Superimpose the CAPM’s required return on the SML c) Indicate which investments will plot on, above and below the SML? d) If an…
Consider the following information: Rate of Return if State Occurs State of Economy Probability of State of Economy Stock A Stock B Stock C Boom .15 .35 .45 .27 Good .55 .16 .10 .08 Poor .25 -.01 -.06 -.04 Bust .05 -.12 -.20 -.09 a) Your portfolio is invested 40 percent each in A and C, and 20 percent in B. What is the expected return of the portfolio? b) What is the variance of this portfolio? The standard deviation? Stock C .45 .27 .10 .08 -.06 -.04 -.20 -.09
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