EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
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Chapter 23, Problem 8PS
Summary Introduction
To calculate: Number of index should be sold in the future market to minimize the risk.
Introduction: A manager is holding stock worth of $1 million having beta value 1.25 and she wants to sell some dollar index in future market to hedge the risk.
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Students have asked these similar questions
An investor wishes to add new stocks to her portfolio. She has information about twoassets, Stock A and Stock B. Stock A has a beta of 1.25 and an expected return of 20%.Stock B has a beta of 0.9 and expected return of 15%. The risk-free rate is 4.5% and themarket risk premium is 15%.Which of these stocks, if any, would you advise the investor to purchase?
-Show the formula step by step-The colleague has given you his forecasts of stocks W and E as follows:
State
Probability
Expected rate ofReturns on Stock W
Expected rate ofReturns on Stock E
Boom
0.7
0.40
-0.10
Bust
0.3
-0.05
0.30
She would like to invest 80% of his money in stock W and 20% of her money in stock E to construct a portfolio.(B) Calculate the portfolio's expected rate of returns and its standard deviation
Elsi is a risk-averse investor. She has invested 60% of her investment in share A and all the remainder in share B. Below are projections for the shares as well as the market.
A
B
Market
Expected return (%)
10
30
20
Standard deviation (%)
40
70
30
Correlations
A
1
B
0.2
1
Market
0.3
0.68
1
Construct a portfolio for Elsi. The portfolio will consist of shares A and B and have the same level of systematic risk as the market.
i)What will be the expected return and standard deviation of returns on the portfolio?
Chapter 23 Solutions
EBK INVESTMENTS
Ch. 23 - Prob. 1PSCh. 23 - Prob. 2PSCh. 23 - Prob. 3PSCh. 23 - Prob. 4PSCh. 23 - Prob. 5PSCh. 23 - Prob. 6PSCh. 23 - Prob. 7PSCh. 23 - Prob. 8PSCh. 23 - Prob. 9PSCh. 23 - Prob. 10PS
Ch. 23 - Prob. 11PSCh. 23 - Prob. 12PSCh. 23 - Prob. 13PSCh. 23 - Prob. 14PSCh. 23 - Prob. 15PSCh. 23 - Prob. 16PSCh. 23 - Prob. 17PSCh. 23 - Prob. 18PSCh. 23 - Prob. 19PSCh. 23 - Prob. 20PSCh. 23 - Prob. 21PSCh. 23 - Prob. 22PSCh. 23 - Prob. 23PSCh. 23 - Prob. 24PSCh. 23 - Prob. 25PSCh. 23 - Prob. 26PSCh. 23 - Prob. 1CPCh. 23 - Prob. 2CPCh. 23 - Prob. 3CPCh. 23 - Prob. 4CPCh. 23 - Prob. 5CPCh. 23 - Prob. 6CPCh. 23 - Prob. 7CPCh. 23 - Prob. 8CP
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