You have $10,000 to invest in a stock portfolio. Your choices are stock X with a
ID: 2716006 • Letter: Y
Question
You have $10,000 to invest in a stock portfolio. Your choices are stock X with an expected return of 13 percent and stock Y with an expected return of 8 percent. Your goal is to create a portfolio with an expected return of 12.4 percent. All money must be invested. How much will you invest in stock X?
A stock has an expected return of 12 percent, its beta is 0.85, and the risk-free rate is 6.6 percent. What must the expected return on the market be?
6.35%
12.31%
13.60%
13.47%
12.95%
A portfolio is invested 20 percent in Stock G, 60 percent in Stock J, and 20 percent in Stock K. The expected returns on these stocks are 10 percent, 17 percent, and 22 percent, respectively. What is the portfolio's expected return?
16.60%
15.77%
13.07%
17.43%
17.26%
Your portfolio is invested 30 percent each in stocks A and C, and 40 percent in stock B. What is the standard deviation of your portfolio given the following information?
You have $10,000 to invest in a stock portfolio. Your choices are stock X with an expected return of 13 percent and stock Y with an expected return of 8 percent. Your goal is to create a portfolio with an expected return of 12.4 percent. All money must be invested. How much will you invest in stock X?
Explanation / Answer
Answer: Let x = $amt of Stock X and y = $amt of Stock Y.
x + y = 10000
1.13x + 1.08y = 1.124 * 10000 = 11240
Substituting y = 10000 - x in the second equation,
1.13x + 1.08 (10000 - x) = 11240
1.13x + 10800 - 1.08x = 11240
.05x = 440
x = 8800
Therefore y = 1200
Sanity check:
1.13 * 8800 = 9944
1.08 * 1200 = 1296
9944+ 1296 = 11240, a return of 12.40%
We will invest in stock X is $8800
Answer: Calculation of the expected return on the market will be:
Ke=Rf+Beta[Erm-Rf]
12%=6.6%+0.85[x-6.6%]
5.4%=0.85x-5.61%
X=12.95%
Answer: Calculation of the Portfolio Return:
Rp=0.20*0.10+0.60*0.17+020*0.22
=16.6%
Answer: Calculation of the standard deviation:
State of Probability of Rate of Return Economy State of Economy if State Occurs Er(A) Stock A Stock B Stock C Er(A) Er(B) Er (c ) Deviation A Deviation B Deviation C Square of A Square B Square C P*SQ A P*SQ B P*SQ C Boom 0.25 0.25 0.25 0.45 0.0625 0.0625 0.1125 0.165 0.12 0.32 0.0272 0.0144 0.1024 0.006806 0.0256 0.0256 Good 0.25 0.1 0.13 0.11 0.025 0.0325 0.0275 0.015 0 -0.02 0.0002 0 0.0004 0.00005 0.0001 0.0001 Poor 0.25 0.03 0.05 0.05 0.0075 0.0125 0.0125 -0.055 -0.08 -0.08 0.003 0.0064 0.0064 0.000756 0.0016 0.0016 Bust 0.25 -0.04 -0.09 -0.09 -0.01 0.0225 -0.0225 -0.125 -0.22 -0.22 0.0156 0.0484 0.0484 0.003906 0.0121 0.0121 0.085 0.13 0.13 0.011519 0.0394 0.0394 SD 10.73% 19.85% 19.85% Weight 0.3 0.4 0.3 Portfolio of SD 0.03219 0.0794 0.05955 0.17114Related Questions
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