4. Consider the following information. Your portfolio is invested 30 percent each in A and C, and 40 percent in B. What is the expected return and standard deviation of this portfolio? (10 marks) State of Probability of Rate of Return if State Occurs Economy State of Economy Stock A Stock B Stock C Boom 0.15 0.30 0.45 0.33 Good 0.45 0.12 0.10 0.15 Poor 0.35 0.01 -0.15 -0.05 Bust 0.05 -0.06 -0.30 -0.09

4. Consider the following information. Your portfolio is invested 30 percent each in A and C, and 40 percent in B. What is the expected return and standard deviation of this portfolio? (10 marks) State of Probability of Rate of Return if State Occurs Economy State of Economy Stock A Stock B Stock C Boom 0.15 0.30 0.45 0.33 Good 0.45 0.12 0.10 0.15 Poor 0.35 0.01 -0.15 -0.05 Bust 0.05 -0.06 -0.30 -0.09

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Asset (A) Asset (B) E(RA)=10% E(RB) = 15% (σA)=8% (GB) = 9.5% WA = 0.25 WB = 0.75 COVA.B = 0.006 What is the standard deviation of this portfolio? O 13.75% O 8.79% O 12.5% O 7.72%
Consider the following information: Rate of Return if State Occurs Probability of State of Economy .15 State of Economy Stock A Stock B Stock C Вoom .35 .40 .28 Good .45 .16 .17 .09 Рor .30 -.01 -.03 .01 Bust 10 -10 -12 -.09 Your portfolio is invested 30 percent each in A and C, and 40 percent in B. What is the expected return of the portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b-1. What is the variance of this portfolio? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161.) b-2. What is the standard deviation? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) а. a. Expected return % b-1. Variance b-2. Standard deviation %
EXAMPLE: PORTFOLIO VARIANCE• Consider the following information on returnsand probabilities:▪ Invest 50% of your money in Asset A State Probability A B PortfolioBoom .4 30% -5% 12.5%Bust .6 -10% 25% 7.5%• What are the expected return and standarddeviation for each asset?• What are the expected return and standarddeviation for the portfolio?
What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation (SDi), covariance (COVij), and asset weight (Wi) are as shown below? Asset (A) E(R₂) = 10% SDA = 8% WA = 0.25 COVAB = 0.006 Select one: A. 13.75% B. 7.72% C. 12.5% D. 8.79% Asset (B) E(RB) = 15% SDB = 9.5% WB = 0.75
2. Calculate the expected return and expected risk of the portfolio below given the Asset J and Asset K has a correlation coefficient of +0.8. Asset Asset J Asset K Expected Return 8.0% 14.0% Weighting 60% 40% Risk of each asset 12.0% 21.0%
The following portfolios are being considered for investment. During the period under consideration, RFR =0.07 Porfolio Return Beta P 0.15 1.00 0.05 Q 0.20 1.50 0.1 R 0.10 0.60 0.03 S 0.17 1.10 0.06 Market 0.13 1.00 0.04 Compute the Sharpe measure for each portfolio and the market portfolio Compute the Treynor measure for each portfolio and the market portfolio Rank the portfolios using each measure explaining the cause for any differences you find in the rankings.
The following portfolios are being considered for investment. During the period under consideration, RFR = 0.07.Portfolio Return Beta σiA 0.15 1.0 0.05B 0.20 1.5 0.10C 0.10 0.6 0.03D 0.17 1.1 0.06Market 0.13 1.0 0.04 a. Compute the Sharpe measure for each portfolio and the market portfolio. b. Compute the Treynor measure for each portfolio and the market portfolio. c. Rank the portfolios using each measure, explaining the cause for any differences you find in the rankings.
Consider the following information for four portfolios, the market, and the risk-free rate (RFR): Portfolio Return Beta SD A1 0.15 1.25 0.182 A2 0.1 0.9 0.223 A3 0.12 1.1 0.138 A4 0.08 0.8 0.125 Market 0.11 1 0.2 RFR 0.03 0 0 Refer to Exhibit 18.6. Calculate the Jensen alpha Measure for each portfolio. a. A1 = 0.014, A2 = -0.002, A3 = 0.002, A4 = -0.02 b. A1 = 0.002, A2 = -0.02, A3 = 0.002, A4 = -0.014 c. A1 = 0.02, A2 = -0.002, A3 = 0.002, A4 = -0.014 d. A1 = 0.03, A2 = -0.002, A3 = 0.02, A4 = -0.14 e. A1 = 0.02, A2 = -0.002, A3 = 0.02, A4 = -0.14
Consider a single-index model economy. The index portfolio M has E(RM ) = 6%, σM = 18%.An individual asset i has an estimate of βi = 1.1 and σ2ei = 0.0225 using the single index modelRi = αi + βiRM + ei. The forecast of asset i’s return is E(ri) = 12%. rf = 4%. a) According to asset i’s return forecast, calculate αi. (b) Calculate the optimal weight of combining asset i and the index portfolio M . (c) Calculate the Sharpe ratio of the index portfolio M and the portfolio optimally combiningasset i and the index portfolio M .
You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset: Portfolio Y Z Market Risk-free Rp 13.5% бр 35.00% 12.5 30.00 7.1 20.00 10.6 4.4 25.00 0 Вр 1.55 1.20 0.80 1.00 0 Assume that the correlation of returns on Portfolio Y to returns on the market is 0.70. What percentage of Portfolio Y's return is driven by the market? Note: Enter your answer as a decimal not a percentage. Round your answer to 4 decimal places. × Answer is complete but not entirely correct. R-squared 0.9785
Bay Land, Inc. has the following distribution of returns: StateReturnProbabilityBoom0.30.25Normal0.40.15Bust0.30.30 What is the expected return of the portfolio? What is the standard deviation of the portfolio?
If E(rX)=0.12 and E(rY)=0.08, what would be the expected rate of return of a portfolio made of 30% of X and 70% of Y? A. 0.080 B. 0.120 C. 0.108 D. 0.092 E. 0.100

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