1. Calculate the expected return for the two stocks. (Do not round intermediate

Question

1.

  

  

Calculate the expected return for the two stocks. (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

  

  

Calculate the standard deviation for the two stocks. (Do not round intermediate calculations and round your answers to 2 decimal places. (e.g., 32.16))

  

2.

  

  

What is the expected return on an equally weighted portfolio of these three stocks? (Do not round intermediate calculations and round your answer to 2 decimal places. (e.g., 32.16))

  

What is the variance of a portfolio invested 18 percent each in A and B and 64 percent in C? (Do not round intermediate calculations and round your answer to 6 decimal places. (e.g., 32.161616))

  

  

3.

What are the portfolio weights for a portfolio that has 150 shares of Stock A that sell for $40 per share and 115 shares of Stock B that sell for $25 per share? (Do not round intermediate calculations and round your answers to 4 decimal places. (e.g., 32.1616))

4.

You own a portfolio that has $2,800 invested in Stock A and $3,800 invested in Stock B. If the expected returns on these stocks are 8 percent and 11 percent, respectively, what is the expected return on the portfolio? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

%

5.

You own a stock portfolio invested 35 percent in Stock Q, 25 percent in Stock R, 25 percent in Stock S, and 15 percent in Stock T. The betas for these four stocks are .86, 1.19, 1.03, and 1.21, respectively. What is the portfolio beta? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

  

6.

A stock has a beta of 1.16, the expected return on the market is 12 percent, and the risk-free rate is 3.5 percent. What must the expected return on this stock be? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

%

7.

Stock Y has a beta of 1.6 and an expected return of 16.6 percent. Stock Z has a beta of 0.8 and an expected return of 9.4 percent. If the risk-free rate is 5.1 percent and the market risk premium is 6.6 percent, the reward-to-risk ratios for stocks Y and Z are  and  percent, respectively. Since the SML reward-to-risk is  percent, Stock Y is (undervalued or overvalued) and Stock Z is (undervalued or overvalued). (Do not round intermediate calculations and round your answers to 2 decimal places. (e.g., 32.16)) (Please choose between undervalued and overvalued)

Based on the following information:

Explanation / Answer

  expected return for A =.17*0.08 + 0.58*.11 + .25*0.16= 11.74%

expected return for B=.17*(-.12) + 0.58*.17 + .25*0.34= 16.32%

Expected return

  Stock A

11.74%

  Stock B

16.32%

  standard deviation for A = sqrt(0.17*(0.08 -11.74%)^2+ 0.58*(.11-11.74%)^2 + .25*(0.16-11.74%)^2)= 2.69%

standard deviation for B= sqrt(0.17*(-0.12 -16.32%)^2+ 0.58*(.17-16.32%)^2 + .25*(0.34-16.32%)^2)= 14.65%

  

Standard deviation

  Stock A

2.69%

  Stock B

14.65%

Expected return

  Stock A

11.74%

  Stock B

16.32%

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