STOCK A STOCK B STOCK C TBILLS MARKET Expected Return 0.19 0.15 0.09 0.07 0.16 V
ID: 2805055 • Letter: S
Question
STOCK A STOCK B STOCK C TBILLS MARKET
Expected Return 0.19 0.15 0.09 0.07 0.16
Variance .0200 .0196 .0205 .0000 .0064
Covariance with the Market .0070 .0045 .0013 .0000
19. What comes closest to the expected return on an equally weighted portfolio that consists of Stock
A, Stock B, and Stock C? A. 10.9% B. 12.5% C. 14.3% D. 15.0% E. 19.0%
20. What comes closest to the variance of a portfolio half invested in Stock A and half invested in the market?
A. 0.00 B. 0.01 C. 0.02 D. 0.03 E. 0.04 21.
What comes closest to the beta of Stock C?
A. 0.10 B. 0.15 C. 0.20 D. 0.25 E. 0.30
Need caculations
Explanation / Answer
Answer 19 ) Expected return of equally weighted portfolio = Weight of stock A x Return of stock A + Weight of stock B x Return of stock B + Weight of stock C x Return of stock C
Expected Return = 1/3 * 0.19 + 1/3 *0.15 + 1/3 *0.09 = 14.33%
Answer Option c)
Answer b)
Variance of portfolio = (Weight of A * St.deviation of A )^2 +(Weight of Market * St. deviation of Market)^2 + (2* Weight of A*Weight of Market *Covariance Market &A)
St. deviation = (Variance)^1/2
St. deviation A = (0.0200)^1/2 = 0.141421
St. deviation Market = (0.0064)^1/2 = 0.080
Putting all the value in the above formulae = (0.005) + (0.0016) + 0.0035 = 0.0101
Variance = (0.005) + (0.0016) + (0.0035) = 0.0101
Answer-Option b)
Answer C) Beta Of C = Covariance of C with market / Variance of Market = 0.0013 / 0.0064 =0.203
Answer -Option c)
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