FUND.OF CORP.FIN.(LL)-W/ACCESS >CUSTOM<
11th Edition
ISBN: 9781260100259
Author: Ross
Publisher: MCG CUSTOM
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Chapter 13, Problem 3QP
Portfolio Expected Return [LO1] You own a portfolio that is 35 percent invested in Stock X, 20 percent in Stock Y, and 45 percent in Stock Z. The expected returns on these three stocks are 8 percent, 16 percent, and 11 percent, respectively. What is the expected return on the portfolio?
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Chapter 13 Solutions
FUND.OF CORP.FIN.(LL)-W/ACCESS >CUSTOM<
Ch. 13.1 - How do we calculate the expected return on a...Ch. 13.1 - In words, how do we calculate the variance of the...Ch. 13.2 - What is a portfolio weight?Ch. 13.2 - How do we calculate the expected return on a...Ch. 13.2 - Is there a simple relationship between the...Ch. 13.3 - What are the two basic parts of a return?Ch. 13.3 - Under what conditions will a companys announcement...Ch. 13.4 - Prob. 13.4ACQCh. 13.4 - Prob. 13.4BCQCh. 13.5 - What happens to the standard deviation of return...
Ch. 13.5 - What is the principle of diversification?Ch. 13.5 - Why is some risk diversifiable? Why is some risk...Ch. 13.5 - Why cant systematic risk be diversified away?Ch. 13.6 - Prob. 13.6ACQCh. 13.6 - What does a beta coefficient measure?Ch. 13.6 - True or false: The expected return on a risky...Ch. 13.6 - How do you calculate a portfolio beta?Ch. 13.7 - Prob. 13.7ACQCh. 13.7 - What is the security market line? Why must all...Ch. 13.7 - Prob. 13.7CCQCh. 13.8 - If an investment has a positive NPV, would it plot...Ch. 13.8 - What is meant by the term cost of capital?Ch. 13 - Prob. 13.1CTFCh. 13 - Prob. 13.5CTFCh. 13 - Beta is a measure of what?Ch. 13 - The slope of the security market line is equal to...Ch. 13 - Where would a negative net present value project...Ch. 13 - Prob. 1CRCTCh. 13 - Prob. 2CRCTCh. 13 - Systematic versus Unsystematic Risk [LO3] Classify...Ch. 13 - Systematic versus Unsystematic Risk [LO3] Indicate...Ch. 13 - Prob. 5CRCTCh. 13 - Diversification [LO2] True or false: The most...Ch. 13 - Portfolio Risk [LO2] If a portfolio has a positive...Ch. 13 - Beta and CAPM[LO4] Is it possible that a risky...Ch. 13 - Corporate Downsizing [LO1] In recent years, it has...Ch. 13 - Earnings and Stock Returns [LO1] As indicated by a...Ch. 13 - Determining Portfolio Weights [LO1] What are the...Ch. 13 - Portfolio Expected Return [LO1] You own a...Ch. 13 - Portfolio Expected Return [LO1] You own a...Ch. 13 - Prob. 4QPCh. 13 - Prob. 5QPCh. 13 - Prob. 6QPCh. 13 - Calculating Returns and Standard Deviations [LO1]...Ch. 13 - Calculating Expected Returns [LO1] A portfolio is...Ch. 13 - Returns and Variances [LO1] Consider the following...Ch. 13 - Returns and Standard Deviations [LO1] Consider the...Ch. 13 - Calculating Portfolio Betas [LO4] You own a stock...Ch. 13 - Calculating Portfolio Betas [LO4] You own a...Ch. 13 - Using CAPM[LO4] A stock has a beta of 1.15, the...Ch. 13 - Using CAPM[LO4] A stock has an expected return of...Ch. 13 - Using CAPM [LO4] A stock has an expected return of...Ch. 13 - Using CAPM [LO4] A stock has an expected return of...Ch. 13 - Using the SML[LO4] Asset W has an expected return...Ch. 13 - Reward-to-Risk Ratios [LO4] Stock Y has a beta of...Ch. 13 - Reward-to-Risk Ratios [LO4] In the previous...Ch. 13 - Using CAPM [LO4] A stock has a beta of 1.14 and an...Ch. 13 - Portfolio Returns [LO2] Using information from the...Ch. 13 - Prob. 22QPCh. 13 - Portfolio Returns and Deviations [LO2] Consider...Ch. 13 - Analyzing a Portfolio [LO2, 4] You want to create...Ch. 13 - Analyzing a Portfolio [LO2, 4] You have 100,000 to...Ch. 13 - Systematic versus Unsystematic Risk [LO3] Consider...Ch. 13 - SML [LO4] Suppose you observe the following...Ch. 13 - SML [LO4] Suppose you observe the following...Ch. 13 - Prob. 1MCh. 13 - Beta is often estimated by linear regression. A...Ch. 13 - Prob. 3MCh. 13 - Prob. 4MCh. 13 - Prob. 5M
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- Question 4 The risk-free rate of return is 2.7 percent, the inflation rate is 3.1 percent, and the market risk premium is 6.9 percent.What is the expected rate of return on a stock with a beta of 1.08?Select one:A. 12.22 percentB. 11.47 percentC. 10.15 percentD. 10.92 percentarrow_forwardQUESTION Answer the questions below using the following information on stocks A, B, and C. A B C Expected Return 20% 21% 10% Standard Deviation 12% 10% 10% Beta 1.8 2.2 0.8 Assume the risk-free rate of return is 3% and the expected market return is 12% Calculate the required return for stocks A, B, and C. Assuming an investor with a well-diversified portfolio, which stock would the investor want to add to his portfolio? Assuming an investor who will invest all of his money into one security, which stock will the investor choose?arrow_forwardQuestion 3 Assume that the CAPM holds. Assume also that the expected return on the market portfolio is 10%. If a stock with a beta of 2 has an expected return of 15% in this economy, what is the expected return on a stock with a beta of 0.5?arrow_forward
- If you decide to invest in both stocks, and you decide to put 50% in stock A and the Remainder in B, what will be your Portfolio Expected Return and the volatility of the portfolio? States of the Economy Probability Asset A (RA) Asset B (RB) Recession 60 20 35 Normal 20 17 27 Boom 20 14 40arrow_forwardQ11 You have a portfolio with a beta of 1.35. What will be the new portfolio beta if you keep 85 percent of your money in the old portfolio and 15 percent in a stock with a beta of 0.78? (Round your answer to 2 decimal places.) NEW PORTFOLIO BETA. %arrow_forward2C) Assume that the CAPM holds in the economy. The following data is available about the market portfolio, the riskless rate, and two risky assets, W and X: The market portfolio has a standard deviation equals to 10%, stock W has an expected return equals to 16%, standard deviation equals to 12%, and beta equals to one, stock X has a standard deviation equals to 6% and beta equals to 0.7. The risk-free rate is 3%. What is the expected return and the beta of the market portfolio? What is the expected return on asset X? Does asset W lie on the Capital Market Line? Explain why or why not. Suppose you invested $100,000 in these two stocks. The beta of your portfolio is 1.25. How much did you invest in each stock? What is the expected return of this portfolio?arrow_forward
- Q3)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. Which stock is riskiest to a diversified investor? Which stock is riskiest to an undiversified investor who puts all her funds in one of these stocks? Consider a portfolio with equal investments in each stock. What would this portfolio’s beta have been? 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. 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.arrow_forwardQuestion 1 e) As a risk averse investor Lawrence will only invest in the portfolio if it has a coefficient of variation that is below 0.75. Should Lawrence invest in the portfolio, please provide reason(s) to support your response? f) Assume in 2020 the estimated rate of return of the T&T Stock Exchange Composite Index for the upcoming year was 8%, and the estimated return on a 1-year treasury note for the upcoming year was 2%. Using the beta of each security shown in Table 1 above and the market expected returns calculate an expected rate of return for each securityarrow_forwardCAPM The Treasury bill rate is 4%, and the expected return on the market portfolio is 12%. Using the capital asset pricing model: Draw a graph similar to show how the expected return varies with beta. What is the risk premium on the market? What is the required return on an investment with a beta of 1.5? If an investment with a beta of .8 offers an expected return of 9.8%, does it have a positive NPV? If the market expects a return of 11.2% from stock X, what is its beta?arrow_forward
- QUESTION 10 An investor wishes to construct a portfolio by borrowing 35 percent of his original wealth and investing all the money in a stock index. The return on the risk-free asset is 4.0 percent, and the expected return on the stock index is 15 percent. Calculate the expected return on the portfolio. a. 9.50 percent b. 18.25 percent c. 11.15 percent d. 15.00 percent e. 18.85 percentarrow_forwardQUESTION 6 Calculate the expected return for C Inc., which has a beta of 0.8 when the risk-free rate is 0.04 and you expect the market return to be 0.12. a. 8.10 percent b. 9.60 percent c. 10.40 percent d. 11.20 percent e. 12.60 percentarrow_forwardD4) Consider two stocks A and B. Both have an expected return of 10%, and their standard deviations are 18% and 16% respectively. Also, their correlation is 0.35. If the risk-free rate of return is 3%, identify the tangency portfolio, and calculate its expected return and standard deviation.arrow_forward
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Portfolio return, variance, standard deviation; Author: MyFinanceTeacher;https://www.youtube.com/watch?v=RWT0kx36vZE;License: Standard YouTube License, CC-BY