Round the answers to two decimal places in percentage. 71 percent B. If a portfolio of the two assets has a … Stock A has an expected return of 14.05% and a beta of 2.2. Get the detailed answer: Expected Return Year Asset F Asset G Asset H 2016 16% 17% 14% 2017 17 16 15 2018 18 15 16 . What is the expected return on a portfolio that is equally invested in the two assets? 10. Portfolio A has a beta of 1 and an expected return of 21%. 19. To find the expected return in an equally weighted portfolio, we can sum the returns of each asset and divide by the number of assets, so the expected return of the portfolio in each state of the economy is: Boom: Rp = (.18 + .04 + .31)/3 Rp = .1767, or 17.67% The expected return of stocks is 15% and the expected return for bonds is 7%. 77 percent C. … The expected return on the market portfolio is 15%. Consider the following two stocks, A and B. Assume that the expected returns for X, Y, and Z have been calculated and found to be 15%, 10%, and 20%, respectively. Its correlation coefficient with the market is less than 1 b. A. If a … Expected Return Formula – Example #1. The beta of a portfolio comprised of these two assets is 0.85. The stock has produced a total return of 7.48% over the past 12 months compared to -0.3% for the S&P 500. The standard deviation of the market portfolio’s return is 18%. The alpha of the stock is _____. In this economy, stocks A and B have the following characteristics: Stock A has and expected return of 22% and a beta of 2. ... A portfolio has an expected return of 7% with a standard deviation of 13%. Calculate the expected return of the portfolio. 23 percent C. 32 percent D. 45 percent E. 54 percent 3. The risk-free asset has an expected return of 3.4 percent. a. Asset W has an expected return of 17.0 percent and a beta of 1.50. What is the expected return on a portfolio that is equally invested in the two assets? The standard deviation of the market portfolio’s return is 18%. A portfolio consists of one risky asset and one risk-free asset. 16 percent B. In this economy, stocks A and B have the following characteristics: Stock A has and expected return of 22% and a beta of 2. Combining negatively correlated assets having the same expected return results in a portfolio with a lower level of expected return and a lower level of risk. Portfolio will have the same expected return, not lower The two securities under consideration both have an expected return, , equal to 15 percent. Her research department has developed the information shown in the following exhibit. 1%. 71 percent B. The correlation coe cient ˆ AB = 0:4. Expected return uses historical returns and calculates the mean of an anticipated return based on the weighting of assets in a portfolio. The risk-free rate is 5 percent and the market risk premium, kM - kRF, is 6 percent. Expected Return of A = 0.2 (15%) + 0.5 (10%) + 0.3 (-5%) (That is, a 20%, or.2, probability times a 15%, or.15, return; plus a 50%, or.5, probability times a 10%, or.1, return; plus a 30%, or.3, probability of a return of negative 5%, or -.5) = 3% + 5% – 1.5% = 6.5% The market risk premium is the excess return i.e. A. A risk-free asset currently earns 2.4 percent. This portfolio is a special case since all three assets have the same weight. The portfolio is composed of a risky asset with an expected rate of return of 12% and a standard deviation of 15% and a treasury bill with a rate of return of 5%. If the risk-free rate is 2.2 percent, what is the market risk premium? Expected return % b. A stock has a beta of 1.48 and an expected return of 17.3 percent. The equation for its expected return is as follows: Ep = w1E1 + w2E2 + w3E3. A client has a portfolio of common stocks and fixed-income instruments with a current value of £1,350,000. 10.2%E. 1. Thanks in advance. Stock B has an expected return of 15% and a beta of 0.8. The expected return on the market. 7.6%D. b) Calculate the weights of each of these if they are the only 2 holdings in a portfolio which has a beta of 1.00. b. $2,000 is invested in X, $5,000 invested in Y, and $3,000 is invested in Z. 1 Answer to 17. ... or 17%. If the correlation between the assets is 0.3 and the risk free rate 5%, calculate the capital market line. Stock B has an expected return of 20% and a standard deviation of 60%. A firm has an expected return on equity of 15 and an aftertax cost of debt of 10 from ADMS 3530 at York University. Another asset which is risk free is earning 3.25%. A. What is the market risk premium? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) What is the expected return on an asset with a beta of 1.5? Question 17 A stock has a beta of 125 and an expected return of 14 percent A. How much of the portfolio is invested in the risk-free asset if the portfolio beta is 1.07? Note that e2-e1 is the expected value of the difference between the return on asset 2 and the return on asset 1. The risk-free rate is 5 percent and the market portfolio has an expected rate of return ... What conditions are necessary for a portfolio made up of two assets to have a larger expected return than either of the two assets has individually? Stock B has an expected return of 7% and a beta of 1. A risk-free asset currently earns 5.1 percent. A highly risk-averse investor is considering the addition of an asset to a 10-stock portfolio. If a portfolio of the two assets has a beta of 0.95, what are the portfolio weights?3. A risk-free asset currently earns 5.1 percent. 20. The beta of a portfolio comprised of these two assets is 0.85. ... Stock A has an expected return of 17.8 percent, and Stock B has an expected return of 9.6 percent. What is the reward-to-variability ratio? If IBM has a beta of 1.2 when the risk-free rate is 6% and the expected return on the market portfolio is 18%, the expected return on IBM is: a. Alternative 3 (FH) 16.5% 1.291 .0782. According to the capital asset pricing model, a security with a _____. Asset A has an expected return of 17% and a standard deviation of 25%. Asset A has an expected return of 15% and a reward-to-variability ratio of .4. c. If a portfolio of the two assets has … A risk free asset currently earns 4.8 percent. Consider a risky portfolio consisting of two risky mutual funds: a bond fund of long-term debt securities, denoted D, and a stock fund, denoted E. Statistics for Two Mutual Funds are as follows: Debt Equity Expected return, E(r) 8% 13% What would the risk-free rate have to be for the two stocks to be correctly priced relative to each other? For two risky securities M and J possible rate of returns and their joint probabilities a. 23 percent C. 32 percent D. 45 percent 1.25%. Stock A has an expected return of 10% and a beta of 1.20. Expected return %b. The Capital Asset Pricing Model (CAPM) is a model that describes the relationship between the expected return and risk of investing in a security. A stock has a beta of 1.15 and an expected return of 10.4 percent. To illustrate the expected return for an investment portfolio, let’s assume the portfolio is comprised of investments in three assets – X, Y, and Z. 1.5%. A risk-free asset currently earns 2.6 percent. a. A risk-free asset currently earns 3.8 percent. In short, the higher the expected return, the better is the asset. How much of the portfolio is invested in the risk-free asset if the portfolio beta is 1.07? 1 Provided that the two assets are less than perfectly correlated, the risk of the portfolio (measured by the If one gains 5%, the … A risk-averse investor would prefer a portfolio using the risk-free asset and _____. The beta of SDA Corp. common stock is 1.25. Asset B has an expected return of 20% and a reward-to-variability ratio of .3. b. The correlation between the two stocks is 0.25 if you form a portfolio where you put 40% of your money in A and 60% in B, what is the expected return and standard deviation for the portfolio? Therefore: E (R p) = ΣW i R i where i = 1,2,3 … n. Where W i represents the weight attached to the asset, i, and R i is the asset’s return. which produce the lowest possible risk for any given level of expected return. The expected return on SDA Corp. common stock is 16%. According to the capital asset pricing model, what is the expected return on a security with beta of 1? Correlation is measured on a scale of -1.0 to +1.0: If two assets have an expected return correlation of 1.0, that means they are perfectly correlated. View Answer. A stock has a beta of 1.2 and an expected return of 17 percent. The risk-free rate of return is 8%. Correct answers: 3 question: A stock has a beta of 1.65 and an expected return of 11 percent. According to the capital asset pricing model, the expected rate of return on security X with a beta of 1.2 is equal to _____. A risk-free asset currentlyu000bearns 4.8%. the reward expected to compensate an investor for the taking up the risk … Portfolio Return = (60% * 20%) + (40% * 12%) Portfolio Return = 16.8% Portfolio Return Formula – Example #2. Alternative 2 (FG) 16.5% -0- .0. A risk-free asset currently earns 4.6 percent. A risk-free asset currently earns 4.35 percent. Portfolio expected return is the sum of each of the individual asset’s expected returns multiplied by its associated weight. Submitted: 16 years ago. You invest $100 in a portfolio. When it has a beta of zero c. A security never has an equilibrium expected return less than the risk free asset d. None of the above 22. Written as a formula, we get: Expected Rate of … What is the expected return on a porfolio that is equally invested in the two assets? Assume that you have $330,000 invested in … 77 percent C. … where: w n refers to the portfolio weight of each asset and E n its expected return. However, the risk of Stock A as measured by its variance is 3 times that of Stock B. You have $100,000 to invest in a portfolio containing Stock X, Stock Y, and a risk-free asset. The variance of the portfolio is calculated as follows: σp2 = w12σ12 + w22σ22 + 2w1w2Cov1,2. Chapter 17 Investment Management. 71 percent B. 17.2%. Ch17 - Chapter 17 solution for Intermediate Accounting by Donald E. Kieso, Jerry J. Ch11 ppt Rankin; Sample/practice exam 10 February, questions and answers; Kotler Chapter 7 MCQ - Multiple choice questions with answers; Libro Resuelto Emprendimiento y Gestión Primero Bachillerato Guia; A sample of letter of enumerator addressed to your employer Portfolio Expected Return. Using CAMP [LO4] A stock has a beta of 1.35 and an expected return of 16 percent. What percentage of the portfolio is invested in the stock? 21 ) The common stock of Alpha Manufacturers has a beta of 1.24 and an actual expected return of 13.25 percent . Expected return on an asset (r a), the value to be calculated; Risk-free rate (r f), the interest rate available from a risk-free security, such as the 13-week U.S. Treasury bill.No instrument is completely without some risk, including the T-bill, which is subject to inflation risk. CAPM Formula. a Sell the asset, which will drive the price up and cause the expected return to drop . Asset A has an expected return of 15% and a reward-to- variability ratio of .4. 11.6%*Please share working on how to derive to the answer. Portfolio analysis You have been given the return data shown in the first table on three assets - F, G, and H - over the period 2007-2010. View Answer. Let’s take an example to understand the calculation of the Expected Return formula in a better manner. This combination of one risky asset with a risk-free asset leads to a linear relationship between the portfolio expected return and its standard deviation: E (rp) = rf +-1-f up (5.b) The same applies to all portfolios on CAL2; just replace E (rpi), op in equation 5.b with E … What is the expected return on a portfolio that is equally invested in the two assets? What percentage of the portfolio is invested in the stock? (a) Stock A has an expected return of 18% and a standard deviation of 30%. Expected Return : The expected return on a risky asset, given a probability distribution for the possible rates of return. A stock has a beta of 1.35 and an expected return of 16%. 77 percent C. 84 percent D. 89 percent E. 92 percent According to the CAPM, a security has an equilibrium expected return less than that of the risk-free asset when: a. Finance questions and answers. Portfolio Return = (60% * 20%) + (40% * 12%) Portfolio Return = 16.8% Portfolio Return Formula – Example #2. 2%. Assume the capital asset pricing model holds. A stock has an expected return of 17.5% and a beta of 1.65. 17. Expected return equals some risk-free rate (generally the prevailing U.S. Treasury note or bond rate) plus a risk premium (the difference between the historic market return, based upon a well diversified index such as the S&P 500 and the historic … Asset A has an expected return of 12% and a beta of 1.05. ... e. 17.00%. Stock A has 200 shares outstanding, a price per share of $3.00, an expected return of 16% and a volatility of 30%. 3. Expected return is the amount of profit or loss an investor anticipates on an investment that has various known or expected rates of return . 17) When assets are positively correlated, they tend to rise or fall together. A portfolio that combines the risk-free asset and the market portfolio has an expected return of 15% and a standard deviation of 18%. A, which constitutes 40% of this portfolio, has an expected return of 10% and a standard deviation of 20%. The risk-free rate is 14%. A risk-averse investor would prefer a portfolio using the risk-free asset and _____. Stock Z has a beta of .95 and an expected return of 10.3 percent. Let’s take an example of a portfolio of stocks and bonds where stocks have a 50% weight and bonds have a weight of 50%. c Buy the asset, since price is expected to increase . It shows that the expected return on a security is equal to the risk-free return plus a risk premium, which is based on the beta of that security. If your portfolio beta is the same as the market portfolio, what proportion of your funds are invested in asset A? What is the reward-to- variability ratio (Sharpe… 54. Question 147294: Question: A stock has an expected return of 14%, the risk free rate is 4% and the market risk premium is 6% what must the beta of this stock be? A stock has a beta of 1.48 and an expected return of 17.3 percent. A. What must be the expected return on a risk free asset? Stock B has 300 shares outstanding, a price per share of $4.00, an expected return of 10% and a volatility of 15%. Category: Finance. b. _____ of your money should be invested in the risky asset to form a portfolio with an expected rate of return of 9% A) 87% B) 77% C) 67% D) 57% Portfolio B has a beta of 0 and an expected return of 17%. Where: E (Ri) is the expected return on the capital asset, Rf is the risk-free rate, E (Rm) is the expected return of the market, βi is the beta of the security i. A, A B. ER[ ] 0.04 (1.5) (0.08) 0.16=+ × = d. If an investment project with a beta of 0.8 offers an expected return of 9.8 percent, ... On 17 July 2004, ABC Corporation reported an increase of 2 cents in earnings per share (EPS). (a). What is the expected return on a portfolio that is equally invested in the two assets? The SML is described by a line drawn from the risk-free rate: expected return is 5 percent, where beta equals 0 through the market return; expected return is 10 percent, where beta equal 1.0. If a portfolio of the two assets has a - 13948480 What is the expected return of a portfolio invested 25% in Stock A and 75% in Stock B? Portfolio B has an expected return of 15% and standard deviation of 5%. c. The correlation between the return on the risk-free asset with a constant return over time and the return on a risky asset is always: a. a) What is the expected return on a portfolio that is comprised of 1/2 the high risk stock and 1/2 the risk free asset? If a portfolio of the two assets has a beta of .92, what are the portfolio weights? Therefore, A (expected return = 14%) is overvalued, and B (expected return = 18%) is undervalued. The risk-free rate is 8%. 3% C. 5% D. 8%. 9. 125 Mathematically, a portfolio that combines two assets has an expected return that is the weighted average of the returns on the individual assets. If a portfolio has a positive weight for each asset, can the expected return on the portfolio be greater than the return on the asset in the portfolio that has the highest return? Calculate expected return and alpha for each stock. A) 12% B) 17% C) 18% D) 23% 11. Solution provided by the lecturer: State the variables: E(Ri) = 14%, Rf = 4%, market risk premium = 6% We are given all the values for the CAPM except for βi of the stock. (Do not round intermediate calculations and enter your answer as a percent … Where: Ra = Expected return on an investment Rrf = Risk-free rate Ba = Beta of the investment Rm = Expected return on the market And Risk Premium is the difference between the expected return on market minus the risk free rate (Rm – Rrf).. Market Risk Premium. a. Asset A has an expected return of 20% and a standard deviation of 25%. The risk free rate is 10%. What is the reward-to- variability ratio? Which one of the following stock return statistics fluctuates the most over time? The risky asset has an expected return of 11.2 percent and a beta of 1.39. To calculate expected rate of return, you multiply the expected rate of return for each asset by that asset’s weight as part of the portfolio. Recommended Articles. 21. (Do not round intermediate calculations. Rp = expected return for the portfolio; w1 = proportion of the portfolio invested in asset 1; R1 = expected return of asset 1; Expected Variance for a Two Asset Portfolio. The risk free rate is 5%, an the expected return on the market portfolio is 14%. Need more help! Asset A has an expected return of 11% and a beta of 0.7. The risk-free asset has an expected return of 3.4 percent. Consider a world with only two risky assets, Aand B, and a risk-free asset. What is the expected return on a portfolio that is equally invested in the two assets? What is the reward-to-variability ratio? The risk-free rate is 8%. Security A has an expected rate of return of 12% and a beta of 1. Asset B has an expected return of 18% and a beta of 1.4. Solution for Asset A has an expected return of 20% and a standard deviation of 25%. 1.125%. The variance of the return on the market portfolio is .04 and the expected return on the market portfolio is 20%. Enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.) The risk-free rate is 4%. The risk-free rate is 4%. 16 percent B. Capital Asset Pricing Model. ... Re = 7% + 2 (12% – 7%) = 17%. Asset A has an expected return of 17% and a standard deviation of 20%. (4 points) A stock has a beta of 1.2 and an expected return of 17 percent. Expected Return = (0.5 x 10.4%) + (0.5 x 3.8%) = 7.10% A. Consider an investor is planning to invest in three stocks which is Stock A and its expected return of 18% and worth of the invested amount is $20,000 and she is also interested into own Stock B $25,000, which has an expected return of 12%. A risk-free asset currently earns 4.6 percent. A. School Waikato University; Course Title FINA 311; Uploaded By internationalkiwi. The calculator uses the following formula to calculate the expected return of a security (or a portfolio): E (R i) = R f + [ E (R m) − R f ] × β i. Portfolio A has an expected return of 17% and standard deviation of 5%. Stock B has expected return of 12% and a standard deviation of 36%. A. If a portfolio of the two assets has a - 13948480 Stock B has an expected return of 14% and a beta of 1.80. Nevertheless, the price of the stock dropped by $1.50. It is the government bonds of well-developed countries, either US treasury bonds or German government bonds. Question 17 a stock has a beta of 125 and an expected. Also, an investor can use the expected return formula for ranking the asset and eventually make the investment as per the ranking and include them in the portfolio. Asset B has an expected return of 20% and a reward-to- variability ratio of .3. This has been a guide to the Expected Return Formula. A portfolio consists of one risky asset and one risk-free asset. Question: Asset A has an expected return of 12% and a beta of 1.05. Stock B has an expected return of 15% and a beta of 0.8. Chapter 11, Ex.17: Using CAPM. Enter the email address you signed up with and we'll email you a reset link. What is the expected return on a portfolio that is equally invested in the two assets?2. A risk-free asset currently earns 5.1 percent. A. asset A B. asset B C. no risky asset D. can't tell from the data given Forecasted Returns, Standard Deviations, and Betas Forecasted Return Standard Deviation Beta Stock X 14.0% 36% 0.8 Stock Y 17.0 25 1.5 Market index 14.0 15 1.0 Risk-free rate 5.0 a. Consider an economy where Capital Asset Pricing Model holds. a. Consider an investor is planning to invest in three stocks which is Stock A and its expected return of 18% and worth of the invested amount is $20,000 and she is also interested into own Stock B $25,000, which has an expected return of 12%. The risk free rate is 10%. -1% B. Alternative 1 (F) 17.5% 1.291 .0738. ️ LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION → ... 17: Using these assets, you have isolated the three investment: Alternatives shown in the following table: Alternative: Investment: 1: 100% of F: 2: Security Bhas an expected return of 15% and a standard deviation of 28%. ... Asset A has a required return of 18% and a beta of 1.4. Consider an economy where Capital Asset Pricing Model holds. You must invest all of your money. Consider the single factor APT. 1.7%B. You then add each of those results together. The market expected rate of return is 8%, and the risk-free rate is 5%. b. A stock has a beta of 1.2 and an expected return of 17 percent. Asset A has an expected return of 12% and beta of 0.8. Solution provided by the lecturer: State the variables: E(Ri) = 14%, Rf = 4%, market risk premium = 6% We are given all the values for the CAPM except for βi of the stock. The risky asset has an expected return of 11.2 percent and a beta of 1.39.
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