Question

I am currently working on some practice problems for my finance class and am unsure how to set up and calculate the following problems:

1) use the following information for the next two problems

you have concluded that next year the following relationships are possible:

 economic status probability rate of return weak economy .15 -5% static economy .60 5% strong economy .25 15%

a) what is your expected rate of return [E(Ri)] for next year? - I calculated this portion and got 6.00% which is the answer but part B is where I got stuck

b) compute the standard deviation of the rate of return for the one year period?

2) use the following information for the next two problems

 asset a asset b E(Ra) = 10% E (Rb) = 15% st.dev a = 8% st.dev 9.5% Wa = 0.25 Wb = 0.75

Cov AB = 0.006

a) what is the expected return of a portfolio of two risky assets if the expected return, standard deviation, covariance, and asset weight are shown as above?

b) what is the standard deviation of this portfolio?

3) what is the expected return of the three stock portfolios described below?

 common stock market value expected return ando inc 95000 12.% bee co. 32,000 8.75% cool inc. 65000 17.7%

4) the expected return for a stock, calculated using the CAPM is 10.5%. The market free return is 9.5% and the beta of the stock is 1.50. calculate the implied risk-free rate

Last three problems are attached as images (22-24)

Expert Solution
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ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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