Question: The risk - free rate is 4 % , and the market risk premium is 6 % . Stock A has a beta of 0.5

The risk - free rate is 4 % , and the market risk premium is 6 % . Stock A has a beta of 0.5 and standard devia tion 10 % , Stock B has a beta of 1.2 and standard deviation 20 % . Assume that the market is in equilibrium ( required return equals to the expected return ) .

( 1 ) What is the required rate of return on each stock ?

( 2 ) If an investor will invest in only one stock , which one is better based on Sharp ratio ?

( 3 ) If an investor decides to invest 30 % of his wealth in government bond ( risk free ) , 30 % in Stock A and 40 % in Stock B , what will be the portfolio's return ?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Jacob Weinstein wants a program that displays his savings account balance at the end of the month, given the beginning balance, total deposits, and total withdrawals. a. Using the chart shown earlier...

Which of the following statements is true based on the information below? Assume the risk free rate is 6% and the market return is 13%. Stock Beta 1 0.750 Expected Return 10% 2 0.900 13% 3 1.250 14%...

Exxon Mobil has 5% coupon bonds that are non-callable with a YTM of 6%. Which of the following is true? Group of answer choices The price will be at a discount to par The price will be at par It is...

Comfortable Garments Limited is an online apparel selling platform that delivers the readymade garments and accessories to the doorstep of the customers. The owner wants to know the value of his...

B. Portfolio risk and return Ariel holds a $7,500 portfolio that consists of four stocks. Her Investment in each stock, as well as each stock's beta, is listed in the following table: Investment Beta...

Wilson holds a portfolio that invests equally in three stocks (WA - wn - Wc = 1/3). Each stock is described in the following table: Stock Standard Deviation Beta 0.5 Expected Return 7.5% A 23% 38% B...

Assume that you recently graduated and landed a job as a financial planner with Cicero Services, an investment advisory company. The Client presently owns a bond portfolio with $1 million invested in...

questions in the attached document needs to be answered, please elaborate in answers Question #: Charles Corporation sells its product for $50/unit with variable costs at $29/unit. Its fixed costs...

Consider the following stocks all of which will pay a liquidating dividend one year from now and nothing in the interim Assume the risk free rate is 4% and the market risk premium is 6% a. What does...

10. Portfolio risk and return Aa Aa Anusha holds a $5,000 portfolio that consists of four stocks. Her investment in each stock, as well as each stock's beta, is listed in the following table: Stock...

Dear tutor, I am in upper level Finance course. These questions are due. Can you lease help me with these questions? 1. Suppose the current one-year Treasury Bill rate is 6%, the current three-year...

Draw the production of ATP in the processes of Glycolysis and the Krebs cycle (TL 36 ATP).

This is a praxctice assignment I have to do in Scratch but Idon't know where to start. Timer 1. Create a variable called timer. 2. When the green flagis clicked, initialize the timer to 10. 3....

Which of the following is a ratio that measures the profitability of total assets with no consideration of how the assets are financed? ( This ratio is not affected by whether the assets are financed...

Draw a class diagram and its relationship based on the following statements. You can use any UML tool/software to represent your class diagram. Do NOT copy and paste your diagram, use the attachment...