1. Stock Y has a beta of 1.05 and an expected return of 13.10 percent. Stock Z h
ID: 2793392 • Letter: 1
Question
1. Stock Y has a beta of 1.05 and an expected return of 13.10 percent. Stock Z has a beta of 0.70 and an expected return of 7 percent. If the risk-free rate is 5.0 percent and the market risk premium is 7.4 percent, what are the reward-to-risk ratios of Y and Z? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.
2.You own 400 shares of Stock A at a price of $50 per share, 290 shares of Stock B at $75 per share, and 700 shares of Stock C at $27 per share. The betas for the stocks are 0.6, 1.2, and 0.5, respectively. What is the beta of your portfolio? (Do not round intermediate calculations. Round your answer to 2 decimalplaces.)
3.A stock has an expected return of 13.2 percent, a beta of 1.40, and the return on the market is 10.10 percent. What must the risk-free rate be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Explanation / Answer
Stock Y Stock Z Beta 1.05 0.7 Expected Return 13.10% 7.00% Risk free Rate 5.00% 5.00% Reward to Risk Ratio = (Expected Return - Risk free rate)/beta 7.71% 2.86% 2.You own 400 shares of Stock A at a price of $50 per share, 290 shares of Stock B at $75 per share, and 700 shares of Stock C at $27 per share. The betas for the stocks are 0.6, 1.2, and 0.5, respectively. What is the beta of your portfolio? (Do not round intermediate calculations. Round your answer to 2 decimalplaces.) Stock Investment Weights Beta Weights X beta A $20,000.00 32.98% 0.6 0.20 B $21,750.00 35.86% 1.2 0.43 C $18,900.00 31.16% 0.5 0.16 Total $60,650.00 100.00% 0.78 Portfolio Beta 0.78 3.A stock has an expected return of 13.2 percent, a beta of 1.40, and the return on the market is 10.10 percent. What must the risk-free rate be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Required Return = Rf + Beta x (Rf - Rm) 13.2% = Rf + 1.40 x (10.10% - Rf) Riskfree rate Rf = 2.35%
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