11(a) What are the portfolio weights for a portfolio that has 152 shares of Stoc

Question

11(a)

What are the portfolio weights for a portfolio that has 152 shares of Stock A that sell for $30 per share and 120 shares of Stock B that sell for $20 per share? (Do not round intermediate calculations and round your answers to 4 decimal places. (e.g., 32.1616))

11(b)

You own a portfolio that has $3,900 invested in Stock A and $4,900 invested in Stock B. If the expected returns on these stocks are 11 percent and 14 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))

11(c)

You own a portfolio that is 34 percent invested in Stock X, 22 percent in Stock Y, and 44 percent in Stock Z. The expected returns on these three stocks are 11 percent, 18 percent, and 14 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))

11(d)

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

Calculate the standard deviation. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

11(e)

A stock has a beta of 1.00, the expected return on the market is 10 percent, and the risk-free rate is 3.0 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))

11(f)

A stock has an expected return of 14 percent, the risk-free rate is 6 percent, and the market risk premium is 10 percent. What must the beta of this stock be? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

11(g)

A stock has an expected return of 13.5 percent, its beta is 1.45, and the risk-free rate is 6.5 percent. What must the expected return on the market be? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

What are the portfolio weights for a portfolio that has 152 shares of Stock A that sell for $30 per share and 120 shares of Stock B that sell for $20 per share? (Do not round intermediate calculations and round your answers to 4 decimal places. (e.g., 32.1616))

Explanation / Answer

11a. Investment in Stock A = $30 * 152 = $4560

Investment in Stock B = $20 * 120 = $2400

Total Investment = $6960

Weight of A = 4560/6960 * 100 = 65.52%

Weight of B = 2400/6960 * 100 = 34.48%

11b. Total investment = 3900 + 4900 = $8800

Expected Return = 11% * 3900/8800 + 14% * 4900/8800 = 4.87% + 7.80% = 12.67%

11c. expected return on the portfolio = .34*11% + .22*18% + .44*14% = 3.74% + 3.96% + 6.16% = 13.86%

11d. Exprected Return = (.08 * -.112) + (.18 * .052) + (.44*.123) + (.3 * .204) = .00896 + .00936 + .05412 + .0612 = .13364 or 13.364%

Standard Deviation = Square root of [(-.112-.13364)^2 + (.052-.13364)^2 + (.123 - .13664)^2 + (.204 - .13664)^2] / 4

=Square root of [0.06034 + .00667 + .00019 + .004947]/4 = .1343 or 13.43%

11e Expected return = 3% + 1(10%-3%) = 10%

11f 14% = 6% + Beta *10%

Beta = .80

11g 13.50% = 6.50% + 1.45% (Market Return - 6.50%)

Market Return = 11.33%

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