INVESTMENTS (LOOSELEAF) W/CONNECT
11th Edition
ISBN: 9781260465945
Author: Bodie
Publisher: MCG
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Chapter 13, Problem 7PS
Summary Introduction
To calculate:To plot the capital market line with 9 stocks and the available 3 portfolios on a graph of average returns in comparison to the SD.Also compare the mean-variance efficiency of the three portfolios and the market index.
Introduction:Capital market line (CML) is a graph that mirrors the normal return of a portfolio comprising of every single imaginable extent between the market portfolio and a risk-free resource.
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INVESTMENTS (LOOSELEAF) W/CONNECT
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- 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?arrow_forwardTwo-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?arrow_forwardAPT An analyst has modeled the stock of Crisp Trucking using a two-factor APT model. The risk-free rate is 6%, the expected return on the first factor (r1) is 12%, and the expected return on the second factor (r2) is 8%. If bi1 = 0.7 and bi2 = 0.9, what is Crisp’s required return?arrow_forward
- An analyst gathered daily stock returns for Feburary 1 through March 31, calculated the Fama-French factors for each day in the sample (SMBt and HMLt), and estimated the Fama-French regression model shown in Equation 6-21. The estimated coefficients were ai = 0, bi = 1.2, ci = 0.4, and di = 1.3. On April 1, the market return was 10%, the return on the SMB portfolio (rSMB) was 3.2%, and the return on the HML portfolio (rHML) was 4.8%. Using the estimated model, what was the stocks predicted return for April 1?arrow_forwardYou have observed the following returns over time: Assume that the risk-free rate is 6% and the market risk premium is 5%. What are the betas of Stocks X and Y? What are the required rates of return on Stocks X and Y? What is the required rate of return on a portfolio consisting of 80% of Stock X and 20% of Stock Y?arrow_forwardConsider Microsoft Corporation (MSFT) and Meta Platforms, Inc. (META) that have returns variances of 6.25% and 3.24%, respectively. Calculate the standard deviation of portfolio returns for an equal-weighted portfolio of the two assets when their correlation of returns is 0. A. 24.71% B. 19.20% C. 15.40% D. 10.28%arrow_forward
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