INVESTMENTS (LOOSELEAF) W/CONNECT
11th Edition
ISBN: 9781260465945
Author: Bodie
Publisher: MCG
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Chapter 7, Problem 11PS
a.
Summary Introduction
To discuss: If an individual would hold gold over stock and construct a graph for the same.
Introduction: An investor may invest in various stocks to reduce the risk of losses. Such a theory is called correlation theory. It is believed that an investor takes a lot of risk to achieve higher
b.
Summary Introduction
To discuss: If an individual would hold gold over stock and construct a graph for the same given that the correlation between gold and stock is + 1.
Introduction: An investor may invest in various stocks to reduce the risk of losses. Such a theory is called correlation theory. It is believed that an investor takes a lot of risk to achieve higher returns on their investment portfolio.
c.
Summary Introduction
To discuss: If the given data and assumption of correlation represent equilibrium in security market.
Introduction: An investor may invest in various stocks to reduce the risk of losses. Such a theory is called correlation theory. It is believed that an investor takes a lot of risk to achieve higher returns on their investment portfolio.
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Stocks offer an expected rate of return of 18%, with a standard deviation of 22%. Gold offers an expected return of 10% with a standard deviation of 30%.a. In light of the apparent inferiority of gold with respect to both mean return and volatility, would anyone hold gold? If so, demonstrate graphically why one would do so.b. Given the data above, reanswer (a) with the additional assumption that the correlation coefficient between gold and stocks equals 1. Draw a graph illustrating why one would or would not hold gold in one’s portfolio. c. Could the set of assumptions in part (b) for expected returns, standard deviations, and correlation represent an equilibrium for the security market?
Given the following information.is it possible to infer anything about the standard deviation of an individual mining stock Howdy-Doo Ltd: Howdy-Doo Ltd shares have an expected return of 13%. The market porfolio has an expected return of 11% and standard deviation of 22%. The risk-free rate is 5%.\ Assume the market is currently fairly-price and that CAPM theory holds.Hint:the maximum value of correlation coefficient is 1. A.Yes,standard deviation is less than 29.33% B.Yes,the standard deviation is equal to 29.33% C.No,as it is not possible to calculate its beta D.No,as it is not possible to calculate standard deviation without a sample of returns E.Yes,the standard deviation is more than 29.33%
Consider the following information for stocks A, B, and C. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.)
Stock
Expected Return
Standard Deviation
Beta
A
8.90%
14%
0.8
B
10.55
14
1.1
C
13.30
14
1.6
Fund P has one-third of its funds invested in each of the three stocks. The risk-free rate is 4.5%, and the market is in equilibrium. (That is, required returns equal expected returns.)
What is the market risk premium (rM - rRF)? Round your answer to one decimal place.
%
What is the beta of Fund P? Do not round intermediate calculations. Round your answer to two decimal places.
What is the required return of Fund P? Do not round intermediate calculations. Round your answer to two decimal places.
%
What would you expect the standard deviation of Fund P to be?
Less than 14%
Greater than 14%
Equal to 14%
Chapter 7 Solutions
INVESTMENTS (LOOSELEAF) W/CONNECT
Ch. 7 - Prob. 1PSCh. 7 - Prob. 2PSCh. 7 - Prob. 3PSCh. 7 - Prob. 4PSCh. 7 - Prob. 5PSCh. 7 - Prob. 6PSCh. 7 - Prob. 7PSCh. 7 - Prob. 8PSCh. 7 - Prob. 9PSCh. 7 - Prob. 10PS
Ch. 7 - Prob. 11PSCh. 7 - Prob. 12PSCh. 7 - Prob. 13PSCh. 7 - Prob. 14PSCh. 7 - Prob. 15PSCh. 7 - Prob. 16PSCh. 7 - Prob. 17PSCh. 7 - Prob. 18PSCh. 7 - Prob. 19PSCh. 7 - Prob. 20PSCh. 7 - Prob. 21PSCh. 7 - Prob. 22PSCh. 7 - Prob. 23PSCh. 7 - Prob. 1CPCh. 7 - Prob. 2CPCh. 7 - Prob. 3CPCh. 7 - Prob. 4CPCh. 7 - Prob. 5CPCh. 7 - Prob. 6CPCh. 7 - Prob. 7CPCh. 7 - Prob. 8CPCh. 7 - Prob. 9CPCh. 7 - Prob. 10CPCh. 7 - Prob. 11CPCh. 7 - Prob. 12CPCh. 7 - Prob. 13CP
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