Consider the following information: Probability of State of Economy State of Economy Boom Good Poor Bust .18 .42 32 .08 a. Expected return b. Vanance c. Standard deviation Stock A -365 -135 .025 125 Rate of Return if State Occurs Stock B a. Your portfolio is invested 30 percent each in A and C and 40 percent in B. What is the expected return of the portfolio? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. What is the variance of this portfolio? Answer is complete but not entirely correct. 164 55 % 547 20000 Note: Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161. e. What is the standard deviation of this portfolio? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. 465 -115 .035 --265 23 38 % Stock C .345 185 -.090 --105

Consider the following information: Probability of State of Economy State of Economy Boom Good Poor Bust .18 .42 32 .08 a. Expected return b. Vanance c. Standard deviation Stock A -365 -135 .025 125 Rate of Return if State Occurs Stock B a. Your portfolio is invested 30 percent each in A and C and 40 percent in B. What is the expected return of the portfolio? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. What is the variance of this portfolio? Answer is complete but not entirely correct. 164 55 % 547 20000 Note: Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161. e. What is the standard deviation of this portfolio? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. 465 -115 .035 --265 23 38 % Stock C .345 185 -.090 --105

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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Supposing the return from an investment has the following probability distribution Return Probability R (%) 8 0.2 10 0.2 12 0.5 14 0.1 Required: What is the expected return of the investment? What is the risk as measured by the standard deviation of expected returns?
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
An investment has probabilities 0.15, 0.34, 0.44, 0.67, 0.2 and 0.15 of giving returns equal to 50%, 39%, -4%, 20%, -25%, and 42%. What are the expected returns and the standard deviations of returns?
If you plot the relationship between portfolio expected return and portfolio beta, what is the slope of the line that results? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) | Slope of the line %
On the basis of the utility formula below, which investment would you select if you were risk averse with A = 4? Investment Expected return E(r) Standard deviation σ 1 0.12 0.30 2 0.15 0.50 3 0.21 0.16 4 0.24 0.21
The following table shows various statistics for Portfolios 1, 2 and 3 Variance of returns (%) Excess returns (%) Skewness Excess Kurtosis Portfolio 1 15.1 7.8 0.0 0.7 Portfolio 2 20.5 10.2 0.9 -1.8 Portfolio 3 29.3 12.9 -1.5 6.2 As an investment adviser you base your allocation on the Sharpe ratio. Assuming a risk free rate of 1.5%, which portfolio are you most likely to recommend? Portfolio 1with Sharpe ratio 2.0007 Portfolio 2 with Sharpe ratio 2.2528 Portfolio 3 with Sharpe ratio 2.3832 Portfolio 3 with Sharpe ratio 2.1061 Portfolio 2 with Sharpe ratio 1.9215
The following table shows various statistics for Portfolios 1, 2 and 3 Variance of returns (%) Excess returns (%) Skewness Excess Kurtosis Portfolio 1 15.1 7.8 0.0 0.7 Portfolio 2 20.5 10.2 0.9 -1.8 Portfolio 3 29.3 12.9 -1.5 6.2 As an investment adviser you base your allocation on the Sharpe ratio. Assuming a risk free rate of 1.5%, which portfolio are you most likely to recommend? Portfolio 1 Portfolio 2 Portfolio 3 Portfolio 1 and 2 Portfolio 2 and 3
The expected rate of return of an investment ________. a. equals one of the possible rates of return for that investment b. equals the required rate of return for the investment c. is the mean value of the probability distribution of possible returns d. is the median value of the probability distribution of possible returns e. is the mode value of the probability distribution of possible returns
Calculate the (a) expected return, (b) standard deviation, and (c) coefficient of variation for an investment with the following probability distribution: Probability Payoff 0.45 32.0% 0.35 -4.0% 0.20 -20.0%
Portfolio Suppose rA ~ N (0.05, 0.01), rB ~ N (0.1, 0.04) with pA,B = 0.2 where rA and rB are CCR’s. a) Suppose you construct a portfolio with 50% for A and 50% for B. Find the variance of the portfolio CCR. b) Find the portfolio expected gross return. c) Find the expected portfolio CCR.
Expected retun and standard deviation. Use the following information to answer the questions: a. What is the expected return of each asset? b. What is the variance and the standard deviation c. What is the expected return of a portfolio with 1 1 Data Table d. What is the portfolio's variance and standard de - X Hint Make sure to round all intermediate calculatio Swers yo (Click on the following icon D in order to copy its contents into a spreadsheet.) a. What is the expected return of asset J? (Round to four decimal places.) Return on Return on Return on Probability of State State of Asset J in Asset Kin State 0.200 0.140 0.040 Asset L in Economy State State Вoom 0.28 0.070 0.260 0.180 Growth 0.37 0.25 0.070 Stagnant 0.070 0.060 -0.210 Recession 0.10 0.070 -0.100 Print Done
Compute the (a) expected return, (b) standard deviation, and (c) coefficient of variation for investments with the following probability distributions: Probability r/A r/B 0.3 30.0% 5.0% 0.2 10.0 15.0 0.5 -2.0 25.0

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