Portfolio risk & return. The 3-stock portfolio are proposed to you. Assume that the return on...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Portfolio risk & return. The 3-stock portfolio are proposed to you. Assume that the return on market (R) is 11.40 %, and risk-free rate (T-Bill, or Rap) is 1.20%. Note that, T-Bill has no relationship with any of these assets, and its standard deviation is zero. Use table below to calculate risk and return of the portfolio. Assets Asset A Asset B Asset C Investment weight 35.00% 45.00% 20.00% Expected return 30.00% 24.00% 16.00% Standard Deviation 45.00% 20.00% 15.00% Correlation Corr=0.60 AB Corr -0.45 A.C CorrB.C = 0.25 Beta 1.21 1.17 0.65 Questions 1. Calculate expected return of portfolio with all 3 risky assets 2. Calculate Standard deviation of portfolio with all 3 risky assets 3. Assume you sell out Asset A, and replace it with T-Bill, using the same investment weight. Calculate expected return of portfolio of T-Bill and 2 risky assets (Asset B, and C) 4. Assume you sell out Asset A, and replace it with T-Bill, using the same investment weight. Calculate standard deviation of portfolio of T-Bill and 2 risky assets (Asset B, and C) 5. Calculate beta of portfolio with all 3 risky assets (round to 2 digits after decimal). 6. Use CAPM, calculate required rate of return of all 3 risky assets. 7. Use CAPM, assume you add a new asset, Asset D, into portfolio. You adjust your portfolio by investing in all 4 assets, and each with equal weight of investment. Beta of Asset D is 0.24. Calculate beta of portfolio with all 4 risky assets. 8. From question 7, use CAPM and calculate required rate of return of portfolio with all 4 risky assets. Answers % % % % % % Portfolio risk & return. The 3-stock portfolio are proposed to you. Assume that the return on market (R) is 11.40 %, and risk-free rate (T-Bill, or Rap) is 1.20%. Note that, T-Bill has no relationship with any of these assets, and its standard deviation is zero. Use table below to calculate risk and return of the portfolio. Assets Asset A Asset B Asset C Investment weight 35.00% 45.00% 20.00% Expected return 30.00% 24.00% 16.00% Standard Deviation 45.00% 20.00% 15.00% Correlation Corr=0.60 AB Corr -0.45 A.C CorrB.C = 0.25 Beta 1.21 1.17 0.65 Questions 1. Calculate expected return of portfolio with all 3 risky assets 2. Calculate Standard deviation of portfolio with all 3 risky assets 3. Assume you sell out Asset A, and replace it with T-Bill, using the same investment weight. Calculate expected return of portfolio of T-Bill and 2 risky assets (Asset B, and C) 4. Assume you sell out Asset A, and replace it with T-Bill, using the same investment weight. Calculate standard deviation of portfolio of T-Bill and 2 risky assets (Asset B, and C) 5. Calculate beta of portfolio with all 3 risky assets (round to 2 digits after decimal). 6. Use CAPM, calculate required rate of return of all 3 risky assets. 7. Use CAPM, assume you add a new asset, Asset D, into portfolio. You adjust your portfolio by investing in all 4 assets, and each with equal weight of investment. Beta of Asset D is 0.24. Calculate beta of portfolio with all 4 risky assets. 8. From question 7, use CAPM and calculate required rate of return of portfolio with all 4 risky assets. Answers % % % % % %
Expert Answer:
Answer rating: 100% (QA)
Answer To calculate the risk and return of the given portfolio well use the information provided in the table Lets solve each question step by step 1 Calculate expected return of the portfolio with al... View the full answer
Related Book For
Fundamentals of Financial Management
ISBN: 978-1305635937
Concise 9th Edition
Authors: Eugene F. Brigham
Posted Date:
Students also viewed these finance questions
-
Given the table below answer the questions. Product A Product B Product C Total Overhead Number of setups 2 5 3 $ 9,000 Weight of direct materials (pounds) 400 250 350 110,000 Waste and hazardous...
-
The following additional information is available for the Dr. Ivan and Irene Incisor family from Chapters 1-5. Ivan's grandfather died and left a portfolio of municipal bonds. In 2012, they pay Ivan...
-
The following additional information is available for the Dr. Ivan and Irene Incisor family from Chapters 1-6. On December 12, Irene purchased the building where her store is located. She paid...
-
Here are the comparative income statements of Eudaley Corporation. Instructions (a) Prepare a horizontal analysis of the income statement data for Eudaley Corporation, using 2013 as a base. (Show the...
-
Discuss the concept of corporate social responsibility. What role does it play in the relationship between a company and its host country? How does CSV move beyond CSR?
-
How might you draw an indifference curve map that illustrates the following ideas? a. Margarine is just as good as the high-priced spread. b. Things go better with Coke. c. Popcorn is addictive - the...
-
Gear Heads, Inc., restores antique automobiles. The retained earnings balance of the corporation was \($32,000\) at December 31,2009. During 2010, the corporation paid \($40,000\) in dividends to its...
-
You own a nonunion company with 93 nonexempt employees. All of these employees pack books into boxes for shipment to customers throughout the United States. Because of wide differences in...
-
Show the balance sheet presentation for the bond issue at December 31, 2022, using (1) the 103 selling price, and then (2) the 98 selling price. (Enter account name only and do not provide...
-
It is the end of 2019, and you have been asked to create financial statements for the year. Your manager has given you the trial balance on the left.
-
1. Alta Vista Company operates a water and radio broadcasting franchise that provides the following in 2018:Gross receipts Water franchise P 2,000,000Radio franchise 10,000,000Operating expenses...
-
8) A killer whale in its pool observes total internal reflection when it looks at the glass wall at a certain angle (it sees the reflection of the pool, and things in it). At what boundary does this...
-
3. (20 points) Streiber Publishing Company, an all-equity firm, generates perpetual earnings before interest and taxes of $2.5 million per year. It's after-tax, all-equity discount rate is 20%. The...
-
The angular diameter of the Sun as seem from Earth is roughly 0 . 5 degrees or 3 0 arcminutes. Given that the actual diameter of the Sun is 1 . 3 9 x 1 0 ^ 9 m , calculate the distance from the Earth...
-
Following are simplified job cost sheets for three custom jobs at the end of June for Custom Patios. Job Number 102 Materials $ 36,000 Labor 19,000 Overhead 7,600 Job Number 103 Materials $ 72,000...
-
Ivanhoe Railroad Co. is about to issue $100,000 of 9-year bonds that pay a 4.00% annual interest rate, with interest payable semi- annually. The market interest rate is 6%. How much can Ivanhoe...
-
A fast food chain recently conducted a survey among its customers to understand their satisfaction level with their new menu. The survey results showed that while customers were overall satisfied...
-
Outline some of the major problems confronting an international advertiser.
-
You want to buy a car, and a local bank will lend you $40,000. The loan will be fully amortized over 5 years (60 months), and the nominal interest rate will be 8% with interest paid monthly. What...
-
Assume that the risk-free rate is 5.5% and the required return on the market is 12%. What is the required rate of return on a stock with a beta of 2?
-
Barton Industries has operating income for the year of $3,500,000 and a 36% tax rate. Its total invested capital is $20,000,000 and its after-tax percentage cost of capital is 8%. What is the firms...
-
Explain what the following terms mean a. Accounts receivable f. Accounts payable b. Supplies g. Unearned service revenue c. Prepaid rent h. Service revenue d. Furniture i. Rent expense e. Accumulated...
-
Which columns of the accounting work sheet show unadjusted amounts? a. Trial balance b. Adjustments c. Income Statement d. Balance Sheet
-
Riley Insurance Agency reported the following items at May 31: Make Riley's closing entries, as needed, for these accounts. Sales and marketing expense Other assets Depreciation expense Long-term...
Study smarter with the SolutionInn App