EBK CORPORATE FINANCE
11th Edition
ISBN: 8220102798878
Author: Ross
Publisher: YUZU
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Chapter 11, Problem 5QP
Summary Introduction
To determine: The return and standard deviation of Stock A and Stock B.
Introduction: Expected Return is a process of estimating the
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Using the data in the following table,, estimate the:
a. Average return and volatility for each stock.
b. Covariance between the stocks.
c. Correlation between these two stocks.
(a) A stock’s returns have the following distribution:
Calculate the stock’s expected return, standard deviation, and the coefficient of variation.
(b) the standard deviation of the returns of the stocks A and B
Chapter 11 Solutions
EBK CORPORATE FINANCE
Ch. 11 - Diversifiable and Nondiversifiable Risks In broad...Ch. 11 - Systematic versus Unsystematic Risk Classify the...Ch. 11 - Expected Portfolio Returns If a portfolio has a...Ch. 11 - Diversification True or false: The most important...Ch. 11 - Portfolio Risk If a portfolio has a positive...Ch. 11 - Beta and CAPM Is it possible that a risky asset...Ch. 11 - Covariance Briefly explain why the covariance of a...Ch. 11 - Prob. 8CQCh. 11 - Prob. 9CQCh. 11 - Prob. 10CQ
Ch. 11 - Determining Portfolio Weights What are the...Ch. 11 - Portfolio Expected Return You own a portfolio that...Ch. 11 - Portfolio Expected Return You own a portfolio that...Ch. 11 - Portfolio Expected Return You have 10,000 to...Ch. 11 - Prob. 5QPCh. 11 - Calculating Returns and Standard Deviations Based...Ch. 11 - Calculating Expected Returns A portfolio is...Ch. 11 - Returns and Standard Deviations Consider the...Ch. 11 - Returns and Standard Deviations Consider the...Ch. 11 - Calculating Portfolio Betas You own a stock...Ch. 11 - Calculating Portfolio Betas You own a portfolio...Ch. 11 - Using CAPM A stock has a beta of 1.15, the...Ch. 11 - Using CAPM A stock has an expected return of 13.4...Ch. 11 - Using CAPM A stock has an expected return of 13.4...Ch. 11 - Using CAPM A stock has an expected return of 11.2...Ch. 11 - Prob. 16QPCh. 11 - Prob. 17QPCh. 11 - Reward-to-Risk Ratios Stock Y has a beta of 1.20...Ch. 11 - Prob. 19QPCh. 11 - Portfolio Returns Using information from the...Ch. 11 - Prob. 21QPCh. 11 - Portfolio Returns and Deviations Consider the...Ch. 11 - Analyzing a Portfolio You want to create a...Ch. 11 - Prob. 24QPCh. 11 - Prob. 25QPCh. 11 - Prob. 26QPCh. 11 - Prob. 27QPCh. 11 - Prob. 28QPCh. 11 - Correlation and Beta You have been provided the...Ch. 11 - CML The market portfolio has an expected return of...Ch. 11 - Beta and CAPM A portfolio that combines the...Ch. 11 - Beta and CAPM Suppose the risk-free rate is 4.7...Ch. 11 - Systematic versus Unsystematic Risk Consider the...Ch. 11 - SML Suppose you observe the following situation:...Ch. 11 - Prob. 35QPCh. 11 - Prob. 36QPCh. 11 - Prob. 37QPCh. 11 - Minimum Variance Portfolio Assume Stocks A and 8...Ch. 11 - Prob. 1MCCh. 11 - Prob. 2MC
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- A price-weighted index such as the DJIA is a geometric mean of current stock prices. a. True b. Falsearrow_forwardKINDLY ANSWER PART 5,6.and 7 Using the stock price data for any two companies provided below carry out the following tasks: 1.Compute, for each asset: i.Total Returns ii.Expected returns iii.standard deviation iv.Correlation Coefficient 2.Construct the variance-covariance matrix 3.Construct equally weighted portfolio and calculate Expected Return, Standard Deviation and Sharpe ratio. 4.Reconstruct equally weighted portfolio and calculate Expected Return, Standard Deviation and Sharpe ratio. 5.Use Solver to determine optimal risky portfolio. 6.Create hypothetical portfolios (commencing from Weight A=0 and weight B=100) 7.Calculate Expected return and Standard Deviation for all the above combinations 8.Graph the efficient frontier 9.Graph the optimal portfolio 10.Assuming that the investors prefers lower level of risk than what a portfolio of risky assets offer, introduce a risk free asset in the portfolio with a return of 3% 11.Using hypothetical weights (A= Portfolio of Risky…arrow_forwardThe probability distribution of returns for the two stocks X and Y are as follows: Probability 0.1 0.3 0.05 0.25 0.15 0.15 For each of the two stocks, calculate: a. The expected return. b. Variance of returns c. Volatility of returns. Stock X 0.05 -0.1 0.08 -0.08 0.20 0.12 Return Stock Y 0.13 0,04 -0.12 0.21 0.1 -0.05arrow_forward
- Using the stock price data for any two companies provided below carry out the following tasks: 1.Compute, for each asset: i.Total Returns ii.Expected returns iii.standard deviation iv.Correlation Coefficient 2.Construct the variance-covariance matrix 3.Construct equally weighted portfolio and calculate Expected Return, Standard Deviation and Sharpe ratio. 4.Reconstruct equally weighted portfolio and calculate Expected Return, Standard Deviation and Sharpe ratio. 5.Use Solver to determine optimal risky portfolio. 6.Create hypothetical portfolios (commencing from Weight A=0 and weight B=100) 7.Calculate Expected return and Standard Deviation for all the above combinations 8.Graph the efficient frontier 9.Graph the optimal portfolio 10.Assuming that the investors prefers lower level of risk than what a portfolio of risky assets offer, introduce a risk free asset in the portfolio with a return of 3% 11.Using hypothetical weights (A= Portfolio of Risky Assets, B= 1 Risk Free…arrow_forwardRefer to the following observations for stock A and the market portfolio in the table:a) Calculate the main statistic measures to explain the relationship between stock Aand the market portfolio:i) The sample covariance between rate of return for the stock A and the market.ii) The sample Beta factor of stock A.iii) The sample correlation coefficient between the rates of return of the stock A andthe market.iv) The sample coefficient of determination associated with the stock A and the market.b) Draw in the characteristic line of the stock A and give the interpretation - whatdoes it show for the investor?c) Calculate the sample residual variance associated with stock’s A characteristic lineand explain how the investor would interpret the number of this statistic.d) Do you recommend this stock for the investor with the lower tolerance of risk?arrow_forwardSuppose you have the following expectations about the market condition and the returns on Stocks X and Y. a) What are the expected returns for Stocks X and Y, E(rX) and E(rY)? b) What are the standard deviations of the returns for Stocks X and Y, σX and σY?arrow_forward
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