1. Given the probability distributions of returns of Stock A and Stock B below, find out...

   

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1. Given the probability distributions of returns of Stock A and Stock B below, find out the expected returns and standard deviations of Stock A and Stock B and of a portfolio of Stock A and B, with 70% of the fund invested in Stock A and the remaining 30% of the fund invested in Stock B. Probabilities 0.10 0.20 0.30 0.20 0.20 2. The beta of portfolio you formed in Question No. 1 is 1.4. The risk free rate of return is 8% and market risk premium is 6%. Find out the required rate of return of the portfolio. Given the expected rate of return of the portfolio in Question No. 1, would you buy the portfolio. Justify your answer. Question Nos. 3 to 5 relate to the following information regarding a bond. Par Value $1,000; Coupon Rate: 12%; Semi-annual interest payment; and times to maturity: 20 years. Returns of Stock A -10% 15% 20% 20% 30% Returns of Stock B 35% 30% 25% 15% -10% 3. If the required rate of return of the bond is 11%, find out what should be its value today. If the market price of the bond is equal to its intrinsic value you found out, what types of bond it is now? 4. If the required rate of return increases to 12% all on a sudden, how would the value of the bond change as a result? 5. If the current market price of the bond is $ 1060, by using Excel Program find out the yield to maturity of the bond. 1. Given the probability distributions of returns of Stock A and Stock B below, find out the expected returns and standard deviations of Stock A and Stock B and of a portfolio of Stock A and B, with 70% of the fund invested in Stock A and the remaining 30% of the fund invested in Stock B. Probabilities 0.10 0.20 0.30 0.20 0.20 2. The beta of portfolio you formed in Question No. 1 is 1.4. The risk free rate of return is 8% and market risk premium is 6%. Find out the required rate of return of the portfolio. Given the expected rate of return of the portfolio in Question No. 1, would you buy the portfolio. Justify your answer. Question Nos. 3 to 5 relate to the following information regarding a bond. Par Value $1,000; Coupon Rate: 12%; Semi-annual interest payment; and times to maturity: 20 years. Returns of Stock A -10% 15% 20% 20% 30% Returns of Stock B 35% 30% 25% 15% -10% 3. If the required rate of return of the bond is 11%, find out what should be its value today. If the market price of the bond is equal to its intrinsic value you found out, what types of bond it is now? 4. If the required rate of return increases to 12% all on a sudden, how would the value of the bond change as a result? 5. If the current market price of the bond is $ 1060, by using Excel Program find out the yield to maturity of the bond.

Answer rating: 100% (QA)

1 To find the expected returns and standard deviations of Stock A and Stock B we can calculate the weighted average of returns and standard deviations based on the given probabilities Expected Return ... View the full answer