Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Please answer all questions and show work. Thank you very much, I appreciate it. Part A ) Part B ) Part C ) Part D
Please answer all questions and show work. Thank you very much, I appreciate it.
Part A )
Part B )
Part C )
Part D )
A B G H I J D E F Suppose you observe the following situation: 1 2 3 State of Economy Probability of State Bust 0.10 Normal 0.65 Boom 0.25 Percentage Return if State Occurs Stock A Stock B Stock C -12% -5% 24% 9% 10% 8% 35% 21% -15% 27% 35% 38% Calculate the expected return on this protfolio. (10 points) 4 5 6 7 8 9 LO 11 12 13 14 15 16 17 18 19 20 Protfolio Return State of Economy Probability of State Bust 0.10 Normal 0.65 Boom 0.25 Percentage Expect Return Return if State Occurs Stock A Stock B Stock C -12% -5% 24% 9% 10% 8% 35% 21% -15% 27% 35% 38% H26 fi Nm + B D E F G H 1 You want to create a portfolio equally as risky as the market, and you have $500,000 to invest. Information about the possible 1 investments is given below: 2 3 Asset Investment Beta 4 Stock A $ 120,000.00 0.80 5 Stock B $ 150,000.00 1.15 6 Stock C 1.40 7 Risk-free asset 8 How much will you invest in Stock C? (7.5 points) 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 How much will you invest in the risk-free asset? 2.5 Points A B D E F H J K L 1 Stock A has a beta of 1.15 and an expected return of 10.4 percent. A risk-free asset currently earns 3.8 percent. 2 3 Beta E(R) 4 Stock A 1.15 10.40% 5 Risk-free asse 3.80% 6 What is the expected return on a portfolio that is equally invested in the two assets? (5 points) If a portfolio of the two assets has a beta of.7, what are the portfolio weights? (5 points) 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 If a portfolio of the two assets has an expected return of 9 percent, what is its beta? (5 points) F22 J K 1 A B D E G H 1 A stock has an expected return of 13.6 percent, the risk-free rate is 3.7 percent, and the market risk premium is 7.1 percent. 1 2 3 4. E(R) 13.6% 3.7% Market Risk Premium Stock Risk Free Asset 7.1% 5 6 7 8 What must the beta of this stock be? (2.5 points) 9 10 11 Beta A stock has an expected return of 10.9 percent, its beta is.85, and the risk-free rate is 4.6 percent. 12 13 14 15 E(R) 10.9% 4.6% Beta Stock Risk Free Asset 0.85 16 What must the expected return on the market be? (2.5 points) 17 18 19 20 Market E(R) 21 22 23 24 25Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started