Problem Set 6: Portfolio Return (Also upload your excel files showing your work.)

There are 3 stocks in a portfolio: Stock A, Stock B, and Stock C. The portfolio has a return of 3.3%. You are given below the weight of each stock in the portfolio and rate of return. What is the return of Stock C?

StockWeightRate of Return

A35%-4%

B60%7%

C5%?

Problem Set 7: Beta (Also upload your excel files showing your work.)

You are given the information for the following securities:

SecurityWeightBeta

DCLK.1334.03

KO.20.84

INTC.2671.05

KEI.40.59

1. What is the portfolio beta?
2. Which security has the highest systematic risk?
3. Which security has the lowest systematic risk?
4. Is the systematic risk of the portfolio more or less than the market?

Problem Set 8: CAPM (Also upload your excel files showing your work.)

Assume Risk-free rate = 3%, Return on the market = 8%. Calculate the return on the stock if the beta is

1. 0
2. 0.5
3. 1
4. 2
5. Interpret your answers

Problem Set 9: Portfolio Beta (upload your excel files showing your work.)

A $100,000 portfolio is invested in a risk-free security and two stocks. The beta of stock A is 1.80 while the beta of stock B is 0.20. One-half of the portfolio is invested in the risk-free security. How much is invested in stock A if the beta of the portfolio is 0.75?

Problem Set 10: Benefits of Diversification

1. Describe the benefits of diversification in your own words.
2. What is correlation and when does it help with diversification?

Problem Set 11: Portfolio Beta (Also upload your excel files showing your work.)

You want to create a portfolio equally as risky as the market. Given this information, fill in the rest of the following table:

Asset Investment Beta

Stock A 20% 0.8

Stock B 25% 1.3

Stock C ? 1.5

Risk-free Asset? ?

Problem Set 12: CAPM (Also upload your excel files showing your work.)

The Treasury Bill rate is 4%, and the expected return on the market portfolio is 12%.

1. What is the risk premium on the market?
2. What is the required return on an investment with beta of 1.5?
3. If the market expects a return of 11.2% from Stock X, what is its beta?

Problem Set 13 (Also upload your excel files showing your work.)

A stock has a beta of 1.2 and a return of 16%. A risk-free asset currently earns 5%.

1. What is the beta of the risk-free asset?
2. What is the return on the portfolio that is equally invested in the two assets (i.e. stock and risk-free asset)?
3. If a portfolio of the two assets has a beta of 0.75, what are the portfolio weights?
4. If a portfolio of the two assets has an return of 8%, what is its beta?

\Problem Set 14: Market Efficiency

1. If the security prices reflect only past prices and trading volume information, then the market is (choose one from below):
2. weak-form efficient
3. semi-strong form efficient
4. strong-form efficient
5. What is the difference between intrinsic value and market value of the asset?
6. The intrinsic value of an undervalued asset is likely _________ than the asset's market value.