The following table shows information about return of stock and bond. Suppose that your Portfolio contains of 60% stock, 40% bond. Bond Stock Fund Probability scenario 16 - 11 0.3 recession 6 13 0.4 Normal -4 27 0.3 Boom Calculate the expected return of stock, bond, and portfolio. Calculate Standard Deviation of stock, band, and Portfolio Calculate the covariance and correlation

The following table shows information about return of stock and bond. Suppose that your Portfolio contains of 60% stock, 40% bond. Bond Stock Fund Probability scenario 16 - 11 0.3 recession 6 13 0.4 Normal -4 27 0.3 Boom Calculate the expected return of stock, bond, and portfolio. Calculate Standard Deviation of stock, band, and Portfolio Calculate the covariance and correlation

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 6P

See similar textbooks

Similar questions

Two-Asset Portfolio Stock A has an expected return of 12% and a standard deviation of 40%. Stock B has an expected return of 18% and a standard deviation of 60%. The correlation coefficient between Stocks A and B is 0.2. What are the expected return and standard deviation of a portfolio invested 30% in Stock A and 70% in Stock B?
An analyst has modeled the stock of a company using the Fama-French three-factor model. The market return is 10%, the return on the SMB portfolio (rSMB) is 3.2%, and the return on the HML portfolio (rHML) is 4.8%. If ai = 0, bi = 1.2, ci = 20.4, and di = 1.3, what is the stock’s predicted return?
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 ratio
A portfolio is invested 22 percent in Stock G, 37 percent in Stock J, and 41 percent in Stock K. The expected returns on these stocks are 9.5 percent, 12 percent, and 17.4 percent, respectively. What is the portfolio’s expected return?
Suppose you manage an equity fund with the following securities. Use the following data to help build an active portfolio. Input Data Vogt Industries Isher Corporation Hedrock, Incorporated Alpha 0.012 0.006 0.016 Beta 0.277 1.015 1.630 Standard Deviation 0.156 0.168 0.181 Residual Standard Deviation 0.117 0.048 0.113 Information Ratio 0.1026 0.1250 0.1416 Alpha/Residual Variance 0.877 2.604 1.253 Market Data S&P 500 Treasury Bills Expected Raturn 12.00% 2.50% Standard Deviation 20.00% 0.00% Required: Using the information in the table above, please first calculate the initial weight of each stock in an active portfolio, using the Treynor Black approach. Then adjust each weight for beta. (Use cells A5 to D14 from the given information to complete this question.) Treynor-Black Model Vogt Industries Isher Corporation Hedrock, Incorporated…
Consider the following information for three stocks, A, B, and C. The stocks' returns are positively but not perfectly positively correlated with one another, i.e., the correlations are all between 0 and 1. Expected Standard Stock Return Deviation Beta A 10% 20% 1.0 B 10% 10% 1.0 C 12% 12% 1.4 Portfolio AB has half of its funds invested in Stock A and half in Stock B. Portfolio ABC has one third of its funds invested in each of the three stocks. The risk-free rate is 5%, and the market is in equilibrium, so required returns equal expected returns. Which of the following statements is CORRECT? a. Portfolio AB's coefficient of variation is greater than 2.0. b. Portfolio AB's required return is greater than the required return on Stock A. c. Portfolio ABC's expected return is 10.66667%. d. Portfolio ABC has a standard deviation of 20%. e. Portfolio AB has a standard deviation of 20%.
A small market consists of three stocks, A, B, and C. and their financial data and projection are presented below. Assume CAPM holds. Stock Number of shares Stock Price Beta A 750 33 1.2 B 220 51 0.8 C 460 19 1.4 Economic condition Probability A B C Boom 20% 20% 22% 23% Normal 50% 15% 10% 12% Recession 30% 2% 5% 7% Find: the expected return and standard deviation on this portfolio.
how do I calculate the product of the deviations so that I can get the Covariance number for the Bond or the stock? Probability Stock Fund Rate of Return JxK-ProbabilityxRate of Return Squared Deviation(diff from the mean returns) Variance (Probability X Squared Deviation) Bond fund Rate of Return JxK-ProbabilityxRate of Return Squared Deviation(diff from the mean returns) Variance (Probability X Squared Deviation) Severe 0.1 -34 -3.4 2237.29 223.729 -9.00 -0.9 201.64 20.164 Mild 0.2 -20 -4 1108.89 221.778 5.00 1 25.00 5 Normal 0.3 21 6.3 59.29 17.787 9.00 2.7 81.00 24.3 Boom 0.4 36 14.4 515.29 206.116 6.00 2.4 36.00 14.4 Expected or Mean Return 13.3 669.41 Expected or Mean Return 5.20 63.864 Standard Deviation 25.87295886 7.99149548
In a particular year, Salmon Arm Mutual Fund earned a return of 16% by making the following investments in asset classes: Weight return Bonds 20% 12% stocks 80% 17% The return on a bogey portfolio was 12%, based on the following: Weight Return Bonds(aggregate bond index) 60% 10% Stocks (S&P 500 index) 40% 15% The total excess return on the managed portfolio was __________.%
Using the data in the following table, calculate the volatility (standard deviation) of a portfolio that is 75% invested in stock A and 25% in stock B.
The following graph plots the current security market line (SML) and indicates the return that investors require from holding stock from Happy Corp. (HC). Based on the graph, complete the table that follows: 00.51.01.52.020.016.012.08.04.00REQUIRED RATE OF RETURN (Percent)RISK (Beta)Return on HC's Stock CAPM Elements Value Risk-free rate (rRFrRF) Market risk premium (RPMRPM) Happy Corp. stock’s beta Required rate of return on Happy Corp. stock An analyst believes that inflation is going to increase by 2.0% over the next year, while the market risk premium will be unchanged. The analyst uses the Capital Asset Pricing Model (CAPM). The following graph plots the current SML. Calculate Happy Corp.’s new required return. Then, on the graph, use the green points (rectangle symbols) to plot the new SML suggested by this analyst’s prediction. Happy Corp.’s new required rate of return is . Tool tip: Mouse over the points on…
Consider a portfolio with stocks A, B, and C. The total value of the portfolio is $245,000 and it is fully invested in these 3 stocks. $85,653 is invested in A and $69,552 is invested in B. The Betas of stocks A, B, and C are 1.2, .8, and 1.62, respectively. What is the Beta of the portfolio overall?