Expected return on portfolio.

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Answer 1

Question

Chapter 8, Problem 15P

a)

Summary Introduction

To determine: Expected return on portfolio.

b)

Summary Introduction

To determine: Expected risk of the portfolio (standard deviation) with a correlation of +0.3

c)

Summary Introduction

To determine: Required rate of return for both stocks and decide the better stock.

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The stock of Jones Trucking is expected to return 16 percent annually with a standard deviation of 7 percent. The stock of Bush Steel Mills is expected to return 21 percent annually with a standard deviation of 13 percent. The correlation between the returns from the two securities has been estimated to be +0.4. The beta of the Jones stock is 1.1, and the beta of the Bush stock is 1.4. The risk-free rate of return is expected to be 6 percent, and the expected return on the market portfolio is 16 percent. The current dividend for Jones is $5. The current dividend for Bush is $7. What is the expected return from a portfolio containing the two securities if 30 percent of your wealth is invested in Jones and 70 percent is invested in Bush? Round your answer to one decimal place. % What is the expected standard deviation of the portfolio of the two stocks? Round your answer to two decimal places. % Which stock is the better buy in the current market? Round your answers to one decimal…

Landon Stevens is evaluating the expected performance of two common stocks, Furhman Labs, Inc., and Garten Testing, Inc. The risk-free rate is 4 percent, the expected return on the market is 11.5 percent, and the betas of the two stocks are 1.2 and .9, respectively. Landon’s own forecasts of the returns on the two stocks are 13.75 percent for Furhman Labs and 10.50 percent for Garten. Calculate the required return for each stock. Is each stock undervalued, fairly valued, or overvalued?

Answer 2

Question

Chapter 8, Problem 15P

a)

Summary Introduction

To determine: Expected return on portfolio.

b)

Summary Introduction

To determine: Expected risk of the portfolio (standard deviation) with a correlation of +0.3

c)

Summary Introduction

To determine: Required rate of return for both stocks and decide the better stock.

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Answer 3

Question

Chapter 8, Problem 15P

a)

Summary Introduction

To determine: Expected return on portfolio.

b)

Summary Introduction

To determine: Expected risk of the portfolio (standard deviation) with a correlation of +0.3

c)

Summary Introduction

To determine: Required rate of return for both stocks and decide the better stock.

Expert Solution & Answer

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Answer 4

Question

Chapter 8, Problem 15P

a)

Summary Introduction

To determine: Expected return on portfolio.

b)

Summary Introduction

To determine: Expected risk of the portfolio (standard deviation) with a correlation of +0.3

c)

Summary Introduction

To determine: Required rate of return for both stocks and decide the better stock.

Expert Solution & Answer

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Answer 5

Chapter 8, Problem 15P

a)

Summary Introduction

To determine: Expected return on portfolio.

b)

Summary Introduction

To determine: Expected risk of the portfolio (standard deviation) with a correlation of +0.3

c)

Summary Introduction

To determine: Required rate of return for both stocks and decide the better stock.

Answer 6

Chapter 8, Problem 15P

a)

Summary Introduction

To determine: Expected return on portfolio.

Answer 7

Chapter 8, Problem 15P

a)

Summary Introduction

To determine: Expected return on portfolio.

Answer 8

b)

Summary Introduction

To determine: Expected risk of the portfolio (standard deviation) with a correlation of +0.3

Answer 9

b)

Summary Introduction

To determine: Expected risk of the portfolio (standard deviation) with a correlation of +0.3

Answer 10

c)

Summary Introduction

To determine: Required rate of return for both stocks and decide the better stock.

Answer 11

c)

Summary Introduction

To determine: Required rate of return for both stocks and decide the better stock.

Answer 12

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Answer 13

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Answer 14

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Answer 15

Ch. 8 - Prob. 1QTD Ch. 8 - Prob. 2QTD Ch. 8 - Prob. 3QTD Ch. 8 - Prob. 4QTD Ch. 8 - Prob. 5QTD Ch. 8 - Prob. 6QTD Ch. 8 - Prob. 7QTD Ch. 8 - Prob. 8QTD Ch. 8 - Prob. 9QTD Ch. 8 - Prob. 10QTD

Expected return on portfolio.

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To determine: Expected return on portfolio.

To determine: Expected risk of the portfolio (standard deviation) with a correlation of +0.3

To determine: Required rate of return for both stocks and decide the better stock.

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