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Suppose an investor starts with a porfolio consisting of one randomly selected stock. As more and more randomly selected stocks are added to the porfolio, what happens to the porfolios risk.
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- What is a characteristic line? How is this line used to estimate a stocks beta coefficient? Write out and explain the formula that relates total risk, market risk, and diversifiable risk.Suppose an investor starts with a portfolio consisting of one randomly selected stock. As moreand more randomly selected stocks are added tothe portfolio, what happens to the portfolio’s risk?Suppose you are an average risk-averse investor who can purchase only one of the following stocks. Which should you purchased? Explain your reasoning. Investment Expected Return, r Standard Deviation, (r Stock M 6.0% 4.0% Stock N 18.0 12.0 Stock O 12.0 7.0
- Based on the following information, which stock has the least risk? A. Stock A B. Stock B C. Stock C D. Stock DAs the number of stocks in a portfolio increase, the portfolio’s systematic risk can either increase or decrease. Select one: True FalseA close family friend has approached you to help her determine which of the two common stocksshe should invest in. Common Stock A Common Stock BProbability Return Probability Return 0.3 11% 0.2 -5% 0.4 15% 0.3 6% 0.3 19% 0.3 14% 0.2 22%Required:a) Calculate the expected returns of stock A b) Determine the risk (standard deviation) and return of stock Ac) Calculate the expected returns of stock B d) Determine the risk (standard deviation) and return of stock Be) Which investment should your friend invest in?
- A close family friend has approached you to help her determine which of the two common stocks she should invest in. Common Stock A Common stock B Probability Return Probability Return 0.25 11% 0.25 -5% 0.15 15% 0.25 6% 0.6 19% 0.25 14% 0.25 22% Required: Calculate the expected returns of stock A Determine the risk (standard deviation) and return of stock A Calculate the expected returns of stock B Determine the risk (standard deviation) and return of stock B Which investment should your friend invest in?You are considering two stocks and have determined the following information (refer to image): a. Which of the two stocks has the higher expected return?b. Which stock is riskier?c. Given your answers to the two previous questions, what stock is preferred?Your client is considering purchasing stocks. The actual return of one o his choices follows here. Assist him by calculating the standard deviation and advise him what the risk is. Stock 'A' Actual Returns = 6%, 12%, 8%, 10% 0.0164 0.0258 0.0542 0.1072
- a) Share X and Share Y have the following returns with their respective probabilities. Share X Share Y Return Probability Return Probability 10% 0.3 15% 0.35% 0.31% 0.4-4% 0.4-10% 0.3 Calculate the following: i) The expected rate of returns for both shares. ii) The standard deviation for both shares. ii) On a stand-alone basis, select which stock is the riskier..Consider information given in the table below and answers the question asked thereafter: State Probability return on stock A Return on stock B A 0.15 10% 9% B 0.15 6% 15% C 0.10 20% 10% D 0.18 5% -8% E 0.12 -10% 20% F 0.30 8% 5% i. Calculate expected return on each stock? On the basis of this measure, which stockyou will choose?ii. Calculate standard deviation of the returns on each stock? On the basis of thismeasure, which stock you will choose?iii. Calculate coefficient of variance of the returns on each stock? On the basis of thismeasure, which stock you will choose?You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a beta of 1.16 and the total portfolio is equally as risky as the market, what must the beta be for the other stock in your portfolio? Answer to two decimals.