a)
To discuss:
Riskiness based on beta.
Introduction:
Beta is an indicator of the risk tha measures the systematic risk of a risky investment by comparing the risky investment with the average risky asset in the market.
b)
To discuss:
Change in market returns on expected returns.
Introduction:
Beta is an indicator of the risk tha measures the systematic risk of a risky investment by comparing the risky investment with the average risky asset in the market.
c)
To discuss:
Change in market returns on expected returns.
Introduction:
Beta is an indicator of the risk tha measures the systematic risk of a risky investment by comparing the risky investment with the average risky asset in the market.
d)
To discuss:
Asset preference.
Introduction:
Beta is an indicator of the risk tha measures the systematic risk of a risky investment by comparing the risky investment with the average risky asset in the market.
e)
To discuss:
Asset preference.
Introduction:
Beta is an indicator of the risk tha measures the systematic risk of a risky investment by comparing the risky investment with the average risky asset in the market.
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Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
- Part II Question 1: You invest in a portfolio of 5 stocks with an equal investment in each one. The betas of the 5 stocks are as follows: .8, -1.3, .95, 1.2 and 1.4. The risk-free return is 3% and the market return is 7%. A. Compute the beta of the portfolio. B. Compute the required return of the portfolio. Question 2: You are given the following probability distribution for a stock: Probability Outcome .5 -6% .5 18% A) Compute the expected return . B) Compute the standard deviation. C) Compute the coefficient of variation.arrow_forwardSubject: Financial strategy & policy 8-2: PORTFOLIO BETA An individual has $35,000 invested in a stock with a beta of 0.8 and another $40,000 invested in a stock with a beta of 1.4. If these are the only two investments in her portfolio, what is her portfolio’s beta? 8-3: REQUIRED RATE OF RETURN Assume that the risk-free rate is 6% and the expected return on the market is 13%. What is the required rate of return on a stock with a beta of 0.7? 8-4: EXPECTED AND REQUIRED RATES OF RETURN Assume that the risk-free rate is 5% and the market risk premium is 6%. What is the expected return for the overall stock market? What is the required rate of return on a stock with a beta of 1.2?arrow_forwardRisk return exercise : D2L Assessment #7 DePaul, Inc. You are searching for a stock to add to your current stock portfolio. You are interested in DePaul, Inc. You realize that any time you consider a technology stock, it involves elevated risk. The rule you follow is to include only stocks with a coefficient of variation of returns below 1.02. You have obtained the following price information and dividend information: Year Starting Price $40.00 Ending price Quarterly Dividend 1 $42.00 $0.50 $42.00 $47.40 $0.75 3 $47.40 $43.40 $1.00 4 $43.40 $53.40 $1.25 a. Calculate the annual rate of return for each year, 1 through 4, for DePaul stock b. Assume that each year's return is equally probable and calculate the average return over this time period. Calculate the standard deviation of returns over the 4 years. Based on b and c determine the coefficient of variation of returns for the security. Does an investment in this stock fall within the parameters of your investment policy? С. d. e.arrow_forward
- What is the beta of a portfolio made up of two risky assets and a risk-free asset? You invest 35% in asset A with a beta of 1.2 and 35% in asset B with a beta of 1.1. Select one: O a. 0.66 O b.1.29 O C. 0.81 O d.1.14 O e. 1.03arrow_forwardProblem 1: You invest in a portfolio of 5 stocks with an equal investment in each one. The betas of the 5 stocks are as follows: .75, -1.2, .90, 1.3, 1.5. The risk free return is 4% and the market return is 9%. A. Compute the beta of the portfolio B. Compute the required return of the portfolioarrow_forwardQn4: Assume a two-stock portfolio created with $50,000 is invested in both HT and Collections. The expected returns are given below: Calculate the portfolio's return for each state of economy and fill them in the last column, under "Portfolio" (Hint: The portfolio's expected return is a weighted average of the returns of the portfolio's component assets). Calculate the portfolio's expected return (Hint: You have to incorporate the probability distribution of each state of economy). Calculate the portfolio's standard deviation. Economy Recession Below average Average Above average Boom Prob. HT 0.1 -27.0% 0.2 -7.0% 0.4 15.0% 0.2 30.0% 0.1 45.0% Coll 27.0% 13.0% 0.0% -11.0% -21.0% Portfolioarrow_forward
- QUESTION 1 Aisyah is a new investor; she approached RHB Securities and the firm has provided her with the following information. Probability (%) Expected return (%) Stock X Stock Y 20 13 15 30 14 13 50 15 12 Using these stocks, she has identified two investment portfolio alternatives: Alternative 1 50% Stock X, 50% Stock Y Alternative 2 60% Stock X, 40% Stock Y Required: a. Calculatethe expected return and the standard deviation for Stock X and Stock Y.arrow_forwardProblem 1: You invest in a portfolio of 5 stocks with an equal investment in each one. The betas of the 5 stocks are as follows: .75, -1.2, .90, 1.3, 1.5. The risk free return is 4% and the market return is 9%. A. Compute the beta of the portfolio B. Compute the required return of the portfolio Problem 2: You are given the following probability distribution for a stock: Pr. Outcome.6 .4 -4% .6 12% A. Compute the expected return B. Compute the standard deviation C. Presuming the stock returns are normally distributed, what do these results indicate? Problem 3: A stock has a beta of 0.8. The market return is 14% and the risk free return is 3%. Compute the required return for this stock.arrow_forwardBeta coefficients and the capital asset pricing model Suppose you are wondering how much risk you must undertake to generate an acceptable return on your investment portfolio. The risk-free return currently is 3%. The return on the overall stock market is 12%. Use the CAPM to calculate how high the beta coefficient of your investment portfolio would have to be to achieve each of the following expected portfolio returns. a.13% b. 25% c. 16% d. 18% e. Assume you are averse to risk. What is the highest return you can expect if you are unwilling to take more than an average risk?arrow_forward
- q4- The expected return on the market is 11% and the standard deviation of returns on the market is 4.8%. The risk-free rate of return is 5%. If you invest 75% of your funds in the market portfolio, and the balance in the risk-free asset, what is the expected return from your investment? a. 5.95% b. 10.21% c. 6.50% d. 9.50%arrow_forwardYou decide to form a portfolio of the following amounts invested in the following stocks. What is the beta of the portfolio? SET YOUR CALCULATOR TO 4 DECIMAL PLACES THEN INPUT THE ANSWER ROUNDING TO 2 DECIMALS i.e. if your answer is 1.2455, enter it as 1.25. Amount Beta Expected Return $9,370 0.69 10.50% Microsoft $5,598 1.6 16.90% $4,261 1.1 15.75% $4,668 2.39 11.80% Stock Apple Ford Time Warnerarrow_forwardPlease show working Please answer ALL OF QUESTIONS 1 AND 2 1. Assume that the risk-free rate is 3.5% and the market risk premium is 8%. a. What is the required return for the overall stock market? Round your answer to two decimal places. __________ % b. What is the required rate of return on a stock with a beta of 2.4? Round your answer to two decimal places. __________ % 2. An individual has $50,000 invested in a stock with a beta of 0.8 and another $55,000 invested in a stock with a beta of 2.0. If these are the only two investments in her portfolio, what is her portfolio's beta? Do not round intermediate calculations. Round your answer to two decimal places._______arrow_forward