TABLE 1. Fim Portfolio Data - Expedel returns on cOMmponent stocks (%) in fundion of the state of the cconomy Rate of Return (%) for cach State of the Eonomy State of the Probability of State of Eanomy the Economy Slock A Stock B Stock C Good 60.00% 3.00% 34.00% 70 00% Poor 40.00% 15.00% -12.00% -35.00%
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Your employer has asked you to investigate the firm’s portfolio risk and return. The portfolio comprises three stocks. It is invested 50 percent in stock A, 30 percent in stock B and 20 percent in stock C.
(a) Determine what is the portfolio’s expected return.
(b) Determine the portfolio’s variance and standard deviation.
(c) Assume that the expected risk-free rate is 2.75 percent. Determine the expected risk premium on the portfolio.
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- What is the expected return of an equally weighted portfolio comprised of the following three stocks? State ofEconomy Probability ofState of Economy Rate of Returnif State Occurs Stock A Stock B Stock C Boom .25 .19 .13 .07 Normal .72 .15 .05 .13 Bust .03The following questions are based on the given information from table of probabilitydistributions of returns on investment individual shares and portfolio below:Table 3: Probability distributions of returns on investment for individual shares and portfolio. State ofEconomy Probabilityof theStates Return onShare A(rA) Return onShare B(rB) Return on Portfolio AB(rAB)1 0.20 15% -5% 5%2 0.20 -5% 15% 5%3 0.20 5% 25% 15%4 0.20 35% 5% 20%5 0.20 25% 35% 30% Given: By using the above information, demonstrate the rate of risk (variance and standarddeviation) for each of:(i) Share A (ii) Share B (iii) Portfolio A and BAn investment Analysist provide the following data regarding the possible future returns on AmDa’s common stock State of economy Probability ReturnRecession 0.25 -1.4%Normal 0.45 9.4%Boom 0.30 15.4%i. Compute the expected return on the security? ii. Compute the standard deviation on the security? iii. Compute the Coefficient of variation
- 1- Calculate the beta adjusted by the degree of freedom for stock X relative to the equity market using the information from the table (performance): Year X Market 1 -7 7 2 -11 15 3 21 20 4 15 17 5 8 10 6 9 7 7 -2 -1Calculate the weighted average expected return of the portfolio. Stock Investment Expected ReturnA $20,000 15%B $4,000 10%C $26,000 12%Covariance and Correlation The following table shows the expected returns from six different stocks in three different states of the economy: State of Economy Probability Return Stock A Return Stock B Return Stock C Return Stock D Return Stock E Return Stock F Growth 0.25 31% 3% 15% 21% 0% 18% Status Quo 0.50 21% 1% 3% 7% 4% 3% Recession 0.25 20% 4% -5% -6% 6% -4% Consider of a portfolio consisting of 50% in Stock E and 50% in Stock F. Calculate the covariance between Stocks E and F. Calculate the expected return of the portfolio. Calculate the standard deviation of the portfolio.
- For the above shares if the expected inter correlations are given as follows: Investment in RM millions Weight Correlation Petronas 23 ? 0.15(P,M) Maxis 47 ? 0.25(M,B) Berjaya 40 ? 0.35(B,P) d) Compute Weights e) Compute the expected portfolio return and f) Expected portfolio risk g) Portfolio Sharpe ratioReturns State of Economy Prob J K Recession 0.25 -0.02 0.034 Normal 0.6 0.138 0.062 Boom 0.15 0.218 0.092 Based on the following information, a.What are the covariance and correlation between the returns of the two stocks? b.Calculate the portfolio return and portfolio standard deviation if you invest equally in each asset.calculate portfolio risk and return based on following combination: 70% invested in Stock A, 30% in Stock B
- The following return series comes from Global Financial Data. Year Large Stocks LT Gov Bonds US T-bills CPI (Rf asset) (inflation) 2017 21.83% 6.24% 0.80% 2.07% 2018 -5.28% -1.25% 1.81% 2.10% 2019 25.45% 3.35% 2.15% 1.10% 2020 18.16% 10.25% 4.50% 1.88% 2021 28.70% -1.54% 0.40% 7.00% 2022 -19.78% -8.55% 2.20% 6.50% Calculate the average real risk premium earned on large-company stocks using the approximate Fisher equation. (Enter percentages as decimals and round to 4 decimals)The following four macro-economic factors were identified regarding a stock As returns, the stock sensitivity to each factor and the related risk premium associated with each factor have been calculated as follows: Gross domestic product (GDP) growth=0.6 RP=4% Inflation rate= 0.8, RP=2% Platinum prices=-0.7, RP= 5% Standard and Poor’s 500 index return= 1.3 RP=9% The risk free rate is 3% Calculate the expected rate of return using the Arbitrage pricing theory formula.What is the standard deviation of the returns on a stock given the following information? State of Economy Probability of State of Economy Rate of Return if State Occurs Boom .08 .171 Normal .70 .076 Recession .22 .017