Excel Online Structured Activity: CAPM, portfolio risk, and return Consider the following Information for three stocks, Stocks A, B, and C. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.) Stock Standard Deviation Beta Expected Return 9.30 % A 1496 0.8 B 12 11.20 13.10 14 1.6 Fund P has one-third of its funds Invested in each of the three stocks. The risk-free rate is 5.5%, and the market is in equilibrium. (That is, required returns equal expected returns.) The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. THE Open spreadsheet a. What is the market risk premium (MRE? Round your answer to two decimi places b. What is the beta of Fund P7 Do not round Intermediate calculations, Round your answer to two decimal places c. What is the required return of Fund P? Do not round Intermediate calculations. Round your answer to two decimal places % d. Would you expect the standard deviation of Fund P to be less than 14%, equal to 14%, or greater than 14%? L less than 149 Ned 11.20 14 1.2 DU 13.10 14 1.6 Fund P has one-third of its funds invested in each of the three stocks. The risk-free rate is 5.5%, and the market is in equilibrium. (That is required returns equal expected returns.) The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. A Open spreadsheet a. What is the market risk premium (M.)? Round your answer to two decimal places. b. What is the beta of Fund P? Do not round intermediate calculations. Round your answer to two decimal places What is the required return of Fund P? Do not round Intermediate calculations Round your answer to two decimal places % d. Would you expect the standard deviation of Fund P to be less than 14%, equal to 14%, or greater than 14%? 1. less than 14% II greater than 14% III. equal to 149 Check My Work Reset Problem Next Back UN VW RU TO WOLVOU want to do Arin - 10 Percentage - AA EE A- Paste B IUR 29 Wrap Text Merge Center Alignment $. % %828 int Conditional format Tone Se be Font X Cut Copy Format Painter Unda Clipboard B10 fi CAPM, portfolio risk, and return Number B D E F G H 1 M N Risk-Free Rate, IRF 5.50% Formula Formula Formula S 6 7 8 Expected Return Standard Deviation Beta Stock A 9.30% 1400% 0.80 Stock B 11.20% 14.00% 1.20 Stock 13.10% 14.00% 1.60 NA #N/A ANA 0.333333 0.333333 0.333333 UNA NA #N/A 10 Market Risk Premium, RPM 11 12 % Stock in Fund P 13 14 Beta of Fund P 15 16 Required Return of Fund P 17 18 Expected Return of Fund P 19 20 21 22 23 24 25 26 27 28 29 30 31 32 Sheet1 + Calculation Mode Automatic WorkbookStatistics
