Risk and Return You want your portfolio beta to be 1.20. Currently, your portfolio consists of AED 15.000 invested 1. in stock A with a beta of 1.65 and AED 20,000 in stock B with a beta of .72. You have another AED 25.000 to invest and want to divide it between an asset with a beta of 1.48 and a risk-free asset. How much should you invest in the risk-free asset? 2. You recently purchased a stock that is expected to earn 16 percent in a booming economy, 12 percent in a normal economy, and lose 8 percent in a recessionary economy. There is a 20 percent probability of a boom, a 70 percent chance of a normal economy, and a 10 percent chance of a recession. What is your expected rate of return on this stock? What is the standard deviation of a portfolio that is invested 68 percent in stock Q and 32 percent 3. in stock R? Probability of State of Economy 20% 80% Retums if State Occurs Stock Q 17% 7% State of Economy Boom Stock R 10% 8% Normal 4. Five investment alternatives have the following returns and variance of returns. Variance % Expected Return % 14 Alternative 3 16 3 7 3 11 13 12 17 Using the coefficient of variation, rank the five alternatives from highest risk to lowest risk. 5. A stock has a beta of 1.2 and an expected return of 17 percent. A risk-free asset currently earns 5.1 percent. The beta of a portfolio comprised of these two assets is 0.85. What percentage of the portfolio is invested in the stock? 6. The expected return on JK stock is 15.78 percent while the expected return on the market is 11.34 percent. The stock's beta is 1.62. What is the risk-free rate of return? 7. You own a portfolio equally invested in a risk-free asset and two stocks. One of the stocks has a beta of 1.9 and the total portfolio is equally as risky as the market. What is the beta of the second stock? 8. You have a portfolio consisting solely of stock A and stock B. The portfolio has an expected return of 8.7 percent. Stock A has an expected return of 11.4 percent while stock B is expected to return 6.4 percent. What is the portfolio weight of stock A