Description
Questions
- Which of the following well-diversified portfolios would all rational investors prefer?
| Portfolio | E(r) | σ |
| A | .22 | .26 |
| B | .15 | .17 |
- A friend has some reliable information that a certain stock is going to rise from $60 to $65 per share over the next The return on the S&P 500 is expected to be 10% and the 90-day T-bill rate is 2%. If the stock’s beta is .9, should you purchase the stock? (Assume the CAPM is valid)
- Any portfolio is mean-variance efficient it has the lowest risk for a given level of return among the attainable set of
- Calculate the required return for ABC industries which has a beta of 1.75 when the risk free rate is 0.03 and the market return is 0.11.
- The expected return for XYZ stock calculated using the CAPM is 13% and its beta is 1.5. The return on the market portfolio is 10%. Calculate the risk free Round intermediate steps and your final answer to four decimals. Enter your answer in decimal format (EX: .XXXX) .
- The expected return for PQU stock calculated using the CAPM is 12%. The risk free rate is 5% and the beta of the stock is Calculate the market risk premium. Round intermediate steps and your final answer to four decimals. Enter your answer in decimal format (EX:.XXXX).
- As the correlation coefficient between two stocks increases, the benefits of diversification received by combining them into a portfolio also
- The risk return profiles of four stocks are shown in the following
| Stock | Expected Return | Standard Deviation |
| W | 0.09 | 0.21 |
| X | 0.05 | 0.07 |
| Y | 0.15 | 0.36 |
| Z | 0.12 | 0.11 |
Assuming that someone wishes place all their investment dollars in one of these stocks, which of the following statements is true?
- Suppose two stocks are perfectly positively correlated. If you create a two stock portfolio by purchasing both of them, the standard deviation of that portfolio will be the weighted average of the standard deviations of each
- Suppose a stock has an expected return of 12%, while the risk free rate and market risk premium are 3% and 10%, respectively. Find the stock’s beta. Round intermediate steps and your final answer to four
- A portfolio is comprised of three Stock A comprises 35 percent of the portfolio and has a beta of 1.5. Stock B represents 15% of the portfolio and has a beta of 1.60. Stock C has a beta of -.2. Find the required rate of return for the portfolio if the return on the market is 22% and the risk-free rate is 5%.
- Suppose a portfolio has a beta and standard deviation of If the market is in equilibrium, the return for such a portfolio must be zero.
- The CAPM assumes that the only risk relevant to an asset’s expected return are non-diversifiable risk
- Use the following information to answers the next four questions.
Assume that you invested $30,000 in stock X and $30,000 in stock Y
| Year | Stock X Return | Stock Y Return |
| Jan. 2013 | -5% | 8% |
| Jan. 2012 | 15% | 8% |
| Jan. 2011 | 20% | 20% |
Find the rate of return you earned on your portfolio. Round intermediate steps and your final answer to four decimals. Enter your answer in decimal format (EX: .XXXX)
- Find the standard deviation of stock X’s Round intermediate steps to four decimals.
- Find the standard deviation of stock Y’s Round intermediate steps to four decimals.
- Find the standard deviation of your Assume the correlation coefficient between stocks X and Y is .655. Round intermediate steps and your final answer to four decimals. Enter your answer in decimal format (EX: .XXXX).
- Correlation coefficient measures the degree to which two variables move together over
- Which one of the following announcements is most apt to cause the price of a firm’s stock to change?
- Which one of the following is the best example of unsystematic risk?
