1 Portfolio Expected Return You have $10,000 to invest in a stock portfolio Your choices are Stock X with an expected return of 15 percent and Stock Y with an expected return of 9 percent If your goal is to create a portfolio with an expected return of 13 30 percent, how much money will you invest in stock X stock Y 2 Calculating returns and standard deviations Based on the following information, calculate the expected return and standard deviation for the two stocks State of economy Probability of state economy Rate of Return if state occurs Stock A Rate of Return if state occurs Stock B Recession 30 02 20 Normal 55 08 13 Boom 30 13 33 3 Returns and standard deviations Consider the following State of economy Probability of state economy Rate of Return if state occurs Stock A Rate of Return if state occurs Stock B Rate of Return if state occurs Stock C Recession 20 30 45 33 Good 40 12 10 15 Poor 30 01 15 05 Bust 10 20 30 09 Your portfolio is invested 40 percent each in A and C and 20 percent in B what is the expected rate of return of the portfolio What is the variance of this portfolio The standard Deviation 4 Using CAPM A stock has a beta of 1 3 and an expected return of 15 percent A risk free asset currently earns 5 5 percent What is the expected return on a portfolio that is equally invested in the two assets If a portfolio of the two assets has a beta of 8, what are the portfolio weights If a portfolio of the two assets has an expected return of 12 percent, what is its beta If a portfolio of the two assets has a beta of 2 60, what are the portfolio weights How do you interpret the weights for the two assets in this case explain

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jun 10, 2024

1.Portfolio Expected Return: You have $10,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 15 percent and

1.Portfolio Expected Return: You have $10,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 15 percent and Stock Y with an expected return of 9 percent. If your goal is to create a portfolio with an expected return of 13.30 percent, how much money will you invest in stock X? stock Y?

2.Calculating returns and standard deviations: Based on the following information, calculate the expected return and standard deviation for the two stocks.

State of economy	Probability of state economy	Rate of Return if state occurs Stock A	Rate of Return if state occurs Stock B
Recession	.30	.02	-.20
Normal	.55	.08	.13
Boom	.30	.13	.33

3.Returns and standard deviations: Consider the following:

State of economy	Probability of state economy	Rate of Return if state occurs Stock A	Rate of Return if state occurs Stock B	Rate of Return if state occurs Stock C
Recession	.20	.30	.45	.33
Good	.40	.12	.10	.15
Poor	.30	.01	-.15	-.05
Bust	.10	-.20	-.30	-.09

Your portfolio is invested 40 percent each in A and C and 20 percent in B. what is the expected rate of return of the portfolio?
What is the variance of this portfolio? The standard Deviation?

4.Using CAPM: A stock has a beta of 1.3 and an expected return of 15 percent. A risk free asset currently earns 5.5 percent.

What is the expected return on a portfolio that is equally invested in the two assets?
If a portfolio of the two assets has a beta of .8, what are the portfolio weights?
If a portfolio of the two assets has an expected return of 12 percent, what is its beta?
If a portfolio of the two assets has a beta of 2.60, what are the portfolio weights? How do you interpret the weights for the two assets in this case? explain