Q No 3 Assume you are a portfolio manager at JS Global Capital Ltd. Recently you came across three attractive stocks and want to create a portfolio investment in these three stocks. The details of the stocks are given below: Company name Volatility (Standard deviation) Weight in Portfolio Correlation with the market portfolio Engro Ltd 25% 0.30 0.40 Lucky Cement Ltd 12% 0.30 0.60 FFC Ltd 13% 0.40 0.50 The expected return on the market portfolio is 8% and its volatility is 10%. The risk-free rate based on central bank’s discount rate is 3%. Calculate each of the stock’s expected return and risk (beta) as compared to the market What should be the expected return of the portfolio based on values calculated in part a. Calculate the beta of the portfolio? what does it tells regarding the riskiness of the portfolio? d. Using the values from part c, can you calculate the expected return of the portfolio? Is it similar to your answer in part b? Why or why not?

Q No 3 Assume you are a portfolio manager at JS Global Capital Ltd. Recently you came across three attractive stocks and want to create a portfolio investment in these three stocks. The details of the stocks are given below: Company name Volatility (Standard deviation) Weight in Portfolio Correlation with the market portfolio Engro Ltd 25% 0.30 0.40 Lucky Cement Ltd 12% 0.30 0.60 FFC Ltd 13% 0.40 0.50 The expected return on the market portfolio is 8% and its volatility is 10%. The risk-free rate based on central bank’s discount rate is 3%. Calculate each of the stock’s expected return and risk (beta) as compared to the market What should be the expected return of the portfolio based on values calculated in part a. Calculate the beta of the portfolio? what does it tells regarding the riskiness of the portfolio? d. Using the values from part c, can you calculate the expected return of the portfolio? Is it similar to your answer in part b? Why or why not?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

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Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 16P

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Q No 3 Assume you are a portfolio manager at JS Global Capital Ltd. Recently you came across three attractive stocks and want to create a portfolio investment in these three stocks. The details of the stocks are given below: Company name Volatility (Standard deviation) Weight in Portfolio Correlation with the market portfolio Engro Ltd 25% 0.30 0.40 Lucky Cement Ltd 12% 0.30 0.60 FFC Ltd 13% 0.40 0.50 The expected return on the market portfolio is 8% and its volatility is 10%. The risk-free rate based on central bank’s discount rate is 3%. Calculate each of the stock’s expected return and risk (beta) as compared to the market What should be the expected return of the portfolio based on values calculated in part a. Calculate the beta of the portfolio? what does it tells regarding the riskiness of the portfolio?
D4) Finance Consider a portfolio composed of shares AAA and BBB as shown in the following table. At 95% confidence level, select the correct statement AAA BBB Value 2,470,000 785,750 % investment 76% 24% Volatilities 2.32 % 2.69 % Correlation for both assets 0.65 Portfolio Value for both assets 3,255,750 a) The Component VaR of the Asset AAA is 92,223 and the component VaR of the Asset BBB is 27955.69 b) The contribution to the VaR of the Asset AAA is 77% and the one of the Asset 2 is 23% c) Both answers are correct
QUESTION 3 – Risk and ReturnSintok Corporation has collected information on the following three investments. Which investment is the most favourable based on the information presented?Stock A Stock B Stock CProbability Return Probability Return Probability Return0.15 2% 0.25 -3% 0.1 -5%0.4 7% 0.5 20% 0.4 10%0.3 10% 0.25 25% 0.3 15%0.15 15% 0.2 30%
16 [Question text] What is the beta of the following portfolio? Stock Amount invested (RM) Security beta A 14,200 1.39 B 23,900 0.98 C 8,400 1.52 Select one: A. 1.01 B. 1.05 C. 1.20 D. 1.12
INV2 P2 2a You are exploring the use of APT in making investment choices. You have identified three factors labelled F1, F2, and F3 with corresponding risk premia RP1 = 4%, RP2 = 5%, and RP3 = 2%. A stock with ticker ABC has historically shown returns which have followed the equation: rABC=0.12+.75F1+1.0F2+.5F3+eABC What is the equilibrium rate of return for stock ABC using the APT, if the T-bill rate is 4%?
11.2 Portfolio Expected Return You own a portfolio that has $3,100 invested in Stock A and $4,600 invested in Stock B. If the expected returns on these stocks are 9.8 percent and 12.7 percent, respectively, what is the expected return on the portfolio?
Problem 11-23 Analyzing a Portfolio You want to create a portfolio equally as risky as the market, and you have $2,400,000 to invest. Given this information, fill in the rest of the following table: (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) Asset Investment Beta Stock A $360,000 1.00 Stock B $624,000 1.10 Stock C 1.20 Risk-free asset
INV 1 4b You have invested in a portfolio of 60% in risky assets (Portfolio R) and 40% in T-bills. The risky portfolio is described below: E(rR)=12% σR =15% Compute the standard deviation of your overall portfolio.
INV 1 4b You have invested in a portfolio of 60% in risky assets (Portfolio R) and 40% in T-bills. The risky portfolio is described below: E(rR)=12% σR =15% T-bill rate 3% Expected Return on Overall Portfolio is 8.4% What is the standard deviation of your overall portfolio?
Data: S0 = 102; X = 115; 1 + r = 1.1. The two possibilities for ST are 146 and 84. Required: The range of S is 62 while that of P is 31 across the two states. What is the hedge ratio of the put? Form a portfolio of one share of stock and two puts. What is the (nonrandom) payoff to this portfolio? What is the present value of the portfolio? Given that the stock currently is selling at 102, calculate the put value.
Q-3. (a) As an investor, you are holding the following investments: You are planning to sell the holdings of Stock B. The money from the sale will be used to purchase another $20 million of Stock A and another $10 million of Stock C. The risk-free rate is 7 percent and the market risk premium is 6.5 percent. How many percentage points higher will the required return on the portfolio be after you complete this transaction? (b) Mr. Ahsan is holding a $100 million portfolio that consists of the following six stocks: The portfolio has a required return of 13 percent, and the market risk premium is 5.5 percent. Calculate the required return on Stock A, B, C, D, E, and F?
Ch 13] Julia has $5,000.00 to invest in a portfolio. She will build the portfolio from threeassets: Stock A with an expected return of 16.0% and a standard deviation of 42% Stock B with an expected return of 12.0% and a standard deviation of 32% T-Bills with an expected return of 4.00% and a standard deviation of 0%.Assume that she can short sell T-bills, the risk-free asset (or borrow at the risk-free rate).Assume also that she will invest the same amount in Stock A and Stock B. How muchmoney will she invest in Stock A if her goal is to create a portfolio with an expected returnof 20.00%.$(to nearest $0.01)

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Company name	Volatility (Standard deviation)	Weight in Portfolio	Correlation with the market portfolio
Engro Ltd	25%	0.30	0.40
Lucky Cement Ltd	12%	0.30	0.60
FFC Ltd	13%	0.40	0.50