Problem 7-12 Suppose that there are many stocks In the security market and that the characteristics of stocks A and B are glven as follows: Еxpected Standard Stock Return Deviation A 10 19 11 Correlation Suppose that It is possible to borrow at the risk-free rate, r. What must be the value of the risk-free rate? (Hint: Think about constructing a risk-free portfollo from stocks A and B.) (Do not round Intermedlate calculatlons. Round your answer to 3 decimal places.) Risk-free rate %

Q: Weights   Policy Actual 50% stocks 60% stocks 50% bonds 40% bonds     Returns   Index Actual 8%…

A: The portfolio return is computed by the following formula: Portfolio Return = Weight of stock ×…

Q: Calculate the expected rate of return on this risk-free portfolio? (Hint: Can a particular stock…

A: The Capital Asset Pricing Model (CAPM) describes the relationship between systematic risk and…

Q: Problem 2: You have access to three risky assets (Stocks A, B, and C) and ariskless asset:Expected…

A: Portfolio refers to the combination of different assets or securities that will yield the maximum…

Q: Instruction: Complete ALL questions. Question 1 A. Use an example to explain the relationship among…

A: Expected return on Stock: It is called historical rates of return and  is the return  that an…

Q: Question two The rate of retum on treasury bills (a risk free asset) is 4% p.a. The expected retum…

A: Required rate of return is the actual rate of return received from an investment. It can be same as…

Q: 4. Consider the following equation of the CAPM: E(R) = 5%+B₁*10% P is an equally-weighted portfolio…

A: The portfolio consists of a variety of stocks or a basket of stocks which reduces the overall risk…

Q: Suppose that there are many stocks in the security market and that the characteristics of stocks A…

A: Portfolio management in stocks is used to find out the group of investments that conform with the…

Q: Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free…

A: Given: Stock Expected return Standard deviation A 8% 40% B 13% 60%…

Q: Suppose you observe the following situation: Security Pete Corp. Expected Return .190 Beta 1.80…

A: Capital asset pricing model depicts the relationship between the expected return and systematic risk…

Q: Security Sinle-index Model Estimates X Y 2 3 1 Bi 1.5 1.3 0.8 o(e.) 3% 1% 2% Given the data for…

A: Expected Return on each security: E_X = alpha_i + Beta_i*E(r_m) = 2 + 1.5*0.08 = 2.12% Similarly,…

Q: 7. An analyst estimates that a stock has the following probabilities of return depending on the…

A: The expected return of a stock is the expected value of the return based on the probability of…

Q: An investor is evaluating the common share of Bulldogs Inc. which has a beta of 1.8. The expected…

A: Risk free  rate = 2% Market return = 8% Beta = 1.8

Q: 3. You have gathered average return and standard deviation data for five stocks (A-E). How have…

A: Coefficient of variation shows the risk -reward trade off between the return and risk of the stock…

Q: A stock's returns have the following distribution: Demand for the Company's Products Probability of…

A: 1. stock expected return =∑npn×rnwhere,pn= probability of nth stockrn= return of nth stockn = no of…

Q: 6) Stock ABC has a market beta of 1.2. The risk-free rate is 3%, and the market risk premium equals…

A: Given, Market beta = 1.2 Risk free rate = 3% Market risk premium = 4% The given problem can be…

Q: 2. (a) Let the following be observed for the stock price of ZPZ-Bank this day: P = £5.50 (The…

A: Here, To Find: Part a. Fair value of three-month call option =? Part b. Fair value of three-month…

Q: a) the expected return and standard deviation on this portfolio. b) the expected return on the…

A: Expected return on a portfolio is the minimum rate of return that an investor expects to receive on…

Q: 1. Risk free rate represents: a. The market rate of return b. The rate provided by long term…

A: 1. Risk free rate is the rate which is expected by investor with no risks.

Q: Suppose that there are many stocks in the security market and that the characteristics of stocks A…

A: Calculation of risk free rate of return: Excel workings:

Q: 11.1 Expected Return and Standard Deviation This problem will give you some practice calculating…

A: Portfolio management is the branch of finance that deals with managing multiple assets and…

Q: 13. Consider the following discrete probability distribution of payoffs for two securities, A and B,…

A: Since we only answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit the question and…

Q: b) Suppose that you observe the following information in Table 2 for stocks A and B: Table 2…

A: Single index model: Ri=αi+βiRm+ei Ri=excess return over risk free rate

Q: Suppose we observe two stocks with the following characteristics:…

A: In General when we look at risk, we always want to be compensated for having it in our portfolio.…

Q: Consider the following information for three stocks, Stocks X, Y, and Z. The returns on the three…

A: a. Calculate the Market risk premium as follows: Expected return = Risk free rate +(Beta * Market…

Q: Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free…

A: a. Expected rate of return for the given risk free portfolio is: Weighted average return of stock A…

Q: Subject: Finacial stratgy & policy 8-4: Is it possible to construct a portfolio of real-world…

A: Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: 4. An investor anticipates the following forecasted returns in three scenarios for two stocks and…

A: To Find: Expected return Beta Coefficients Expected return and risk of portfolio

Q: 6. Stock A and B have expected return and standard deviation respectively as follow Stock Expected…

A: Answer in Step wise given in pictures

Q: Security 1 8% 13% 18% Security 2 9% .15 .1 .05 11% .1 .2 .1 13% .05 .1 .15 a) Compute the expected…

A: Security 1=8*(0.15+0.1+0.05)+13*(0.1+0.2+0.1)+18*(0.05+0.1+0.15) =13%

Q: estion 1   If an investor holds only stocks in Tencent, the relevant measure of risk will be…

A: When you hold stock than have risk of holding the stock and this risk can be measured by many ways.

Q: 11-7 We have the following information on Stocks A and B. The risk-free rate is 5%, and the market…

A: Using CAPM model CAPM Return = Risk free rate + beta * market risk premium

Q: 1. The following table presents the expected returns of three stocks and the risk free rate. Stock A…

A: Portfolio means a bunch of assets or investments. To reduce the risk, investors invest their funds…

Q: Question 2 Suppose the yield on short-term government securities (perceived to be risk-free) is…

A: Since we only answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit the question and…

Q: Consider the following scenario analysis:       Rate of Return Scenario Probability Stocks…

A: Part a: During recession period the price of bonds decreases, bond prices and bond returns are…

Q: Use the following information: Stock A B Good state 12% 17% Bad state 0% -1% Assume there is 60%…

A: Given, Stock A and Stock B. Investment in Stock A is 9% and investment is Stock B is 1-9%

Q: What is the coefficient of variation for stock A?

A: Information Provided: Stock A expected return = 8% Stock A risk = 6%

Q: Subject: Financial strategy & policy 8-3: REQUIRED RATE OF RETURN Assume that the risk-free rate is…

A: Note: Since you have asked multiple questions, we will solve the first question for you. If you want…

Q: Question 4 The risk-free rate of return is 2.7 percent, the inflation rate is 3.1 percent, and the…

A: Expected rate of return = Risk free rate + (Beta x Market risk premium)

Q: b. Suppose we observe two stocks with the following characteristics:   Stock Expected return…

A: Stock Expected Return Beta M 20% 1.6 N 12% 0.9

Q: 22.Consider the following simplified APT model: Factor Expected Risk Premium Market 6.4% Interest…

A:

Q: The common stock of DEE Bhd. has a beta of 1.24 and an actual expected return of 13.25 percent. The…

A: Actual expected return = 13.25% Beta = 1.24 Risk free rate = 3.7% Market return = 11.78%