Using the market portfolio and risk free asset, you decided to construct a new portfolio N that hasthe same expected return as the portfolio X. Which of the following portfolios is better (Portfolio Xvs Portfolio N)?O Portfolio XO Portfolio NO Cannot determine (CAPM Set-up for Questions 15 to 20]Your current portfollo consists of three assets, the common stock of Citi group (c) and Kellogg Co. (k)combined with an investment in the risk free asset. You know the following about the stocks (p_ijdenotes the correlation between asset i and j, oi denotes the standard deviation of asset i, and mdenotes the market portfolio):p_cm 0.3, p_k.m = 0.4O.C = 0.8, o_k 0.5You also have the following information about the market portfolio, and the risk free asset.f:Elr_m) - 0.13, rf 0.04am 0.2.Assume that Individuals can borrow and lend at riskfree rater_f and that the Capital Asset PricingModels (CAPM) describes expected returns on assets. You have $200,000 Invested in Citi group,$200,000 invested In Kellogg, and $100,000 invested in the riskless asset. Call this portfolo X.

If an investor holds more than one security then we call it a portfolio investment. It is very…

Using the market portfolio and risk free asset, you decided to construct a new portfolio N that has the same expected return as the portfolio X. Which of the following portfolios is better (Portfolio X vs Portfolio N)? O Portfolo X O Portfolio N O Cannot determine

Using the market portfolio and risk free asset, you decided to construct a new portfolio N that has the same expected return as the portfolio X. Which of the following portfolios is better (Portfolio X vs Portfolio N)? O Portfolo X O Portfolio N O Cannot determine

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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You are expected to assess the stand-alone risk of each of the stock using the Sharpe Ratio. The short-term quoted rate of a government issued security is 2.50%. Which of the three stock is the most risky? Format: ABC, DEF, or GHI
Syntex, Inc. is considering an investment in one of two common stocks. Given the information that follows, which investment is better, based on the risk (as measured by the standard deviation) and return? Common Stock A Common Stock B Probability Return Probability Return 0.25 13% 0.25 −7% 0.50 14% 0.25 7% 0.25 18% 0.25 16% 0.25 23% (Click on the icon in order to copy its contents into a spreadsheet.) Question content area bottom Part 1 a. Given the information in the table, the expected rate of return for stock A is enter your response here %. (Round to two decimal places.) Part 2 The standard deviation of stock A is enter your response here %. (Round to two decimal places.) Part 3 b. The expected rate of return for stock B is enter your response here %. (Round to two decimal places.) Part 4 The standard deviation for stock B is enter…
Syntex, Inc. is considering an investment in one of two common stocks. Given the information that follows, which investment is better, based on the risk (as measured by the standard deviation) and return? Common Stock A Common Stock B Probability Return Probability Return 0.35 13% 0.25 −7% 0.30 17% 0.25 8% 0.35 21% 0.25 15% 0.25 23% (Click on the icon in order to copy its contents into a spreadsheet.) Question content area bottom Part 1 a. Given the information in the table, the expected rate of return for stock A is enter your response here%. (Round to two decimal places.)
Suppose that the index model for two Canadian stocks HD and ML is estimated with the following results: RHD =-0.03+2.10RM+eHD R-squared =0.7 RML =0.06+1.60RM+eML R-squared =0.6 σM =0.15 where M is S&P/TSX Comp Index and RX is the excess return of stock X. What is the systematic risk of each stock?
Suppose that the index model for two Canadian stocks HD and ML is estimated with the following results: RHD =-0.03+2.10RM+eHD R-squared =0.7 RML =0.06+1.60RM+eML R-squared =0.6 σM =0.15 where M is S&P/TSX Comp Index and RX is the excess return of stock X. What is the systematic risk of each stock? xxxxxx
Suppose that the capital asset pricing model (CAPM) applies. The risk premium of a stock is 3 percent and the risk premium of the market portfolio is 2. The standard deviation of the market portfo- lio is 6. Compute the covariance between the stock and the market portfolio.
Angela’s portfolio holds security A, which returned 12.0%, security B, which returned 15.0% and security C, which returned -5.0%. At the beginning of the year 45% was invested in security A, 25.0% in security B and the remaining 30% was invested in security C. The correlation between AB is 0.75, between AC 0.35, and between BC -0.5. Securities A's standard deviation is 12%, security B's standard deviations is 15% and security C's is 10%.    Required: Calculate the: A five-year bond pays interest The par value is GHc 1000 and the coupon rate equals seven (7) percent. If the market's required return on the bond is eight (8) percent, at what market price does this sell for?                                    Literature argues that bond prices are inversely related to interest rates leading to different types of bonds issue. Briefly define Par Bonds, Premium Bonds and Discount Cal Bank has a corporate bond that matures in two years but makes semi-annual interest The par…
Angela’s portfolio holds security A, which returned 12.0%, security B, which returned 15.0% and security C, which returned -5.0%. At the beginning of the year 45% was invested in security A, 25.0% in security B and the remaining 30% was invested in security C. The correlation between AB is 0.75, between AC 0.35, and between BC -0.5. Securities A's standard deviation is 12%, security B's standard deviations is 15% and security C's is 10%. Required: Calculate the: a) Explain what happens to a portfolio's overall risk when securities that are uncorrelated are combined.    b) List four steps that go into selecting an optimal portfolio of risky assets.
Angela’s portfolio holds security A, which returned 12.0%, security B, which returned 15.0% and security C, which returned -5.0%. At the beginning of the year 45% was invested in security A, 25.0% in security B and the remaining 30% was invested in security C. The correlation between AB is 0.75, between AC 0.35, and between BC -0.5. Securities A's standard deviation is 12%, security B's standard deviations is 15% and security C's is 10%.                  Required: Calculate the: a) Expected return and Portfolio variance of Angela's Portfolio b) Portfolio Standard deviation of What happens to the portfolio risk if market conditions reduce the risk of security B by 50%? c) Explain what happens to a portfolio's overall risk when securities that are uncorrelated are combined.
Angela’s portfolio holds security A, which returned 12.0%, security B, which returned 15.0% and security C, which returned -5.0%. At the beginning of the year 45% was invested in security A, 25.0% in security B and the remaining 30% was invested in security C. The correlation between AB is 0.75, between AC 0.35, and between BC -0.5. Securities A's standard deviation is 12%, security B's standard deviations is 15% and security C's is 10%. Required: Calculate the: a) Expected return and Portfolio variance of Angela's Portfolio b) Portfolio Standard deviation of What happens to the portfolio risk if market conditions reduce the risk of security B by 50%?
financial advisor evaluates four stocks for inclusion in an investor's portfolio. A orrelation matrix showing each stock's correlation with the other stocks is shown below Stock ALK CMN BTY DLE ALK 0.40 0.58 1.00 -0.25 BTY 0.40 1.00 0.16 -0.04 CMN -.25 .16 1.00 .37 DLE .58 .04 .37 1.00 f the goal is to reduce the investor's overall portfolio risk, which two stocks should the advisor recommend? a. ALK and DLE b. ALK and CMN c. BTY and DLE BTY and CM
PART A,B and C are completed. need help in D and E. TIA Unique vs. Market Risk. The figure below shows plots of monthly rates of return on three stocks versus the stock market index. The beta and standard deviation of each stock is given besides its plot. A. Which stock is riskiest to a diversified investor? B. Which stock is riskiest to an undiversified investor who puts all her funds in one of these stocks? C. Consider a portfolio with equal investments in each stock. What would this portfolio’s beta have been? D. Consider a well-diversified portfolio made up of stocks with the same beta as Exxon. What are the beta and standard deviation of this portfolio’s return? The standard deviation of the market portfolio’s return is 20 percent. E. What is the expected rate of return on each stock? Use the capital asset pricing model with a market risk premium of 8 percent. The risk-free rate of interest is 4 percent.

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