A portfolio that combines the risk-free asset and the market portfolio has an expected return of 15% and a standard deviation of 18%. Note that e2-e1 is the expected value of the difference between the return on asset 2 and the return on asset 1. Proposition II of MM states that the expected return on assets increases as the debtequity ratio increases . The variance of the return on the market portfolio is .04 and the expected return on the market portfolio is 20%. Enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.) The risk-free rate is 4%. What is the expected return on a portfolio that is equally invested in the two assets? The two securities under consideration both have an expected return, , equal to 15 percent. The risk-free rate is 14%. Assume that you have $330,000 invested in … The beta of a portfolio comprised of these two assets is 0.85. A risk-averse investor would prefer a portfolio using the risk-free asset and _____. A. ... e. 17.00%. 1.125%. ... Asset A has a required return of 18% and a beta of 1.4. 23 percent C. 32 percent D. 45 percent E. 54 percent 125 Mathematically, a portfolio that combines two assets has an expected return that is the weighted average of the returns on the individual assets. What is the expected return on a portfolio that is equally invested in the two assets?2. Sell the asset, which will drive the price down and cause the expected return to reach the required return . 19. What percentage of the portfolio is invested in the stock? Stock B has 300 shares outstanding, a price per share of $4.00, an expected return of 10% and a volatility of 15%. Consider a risky portfolio consisting of two risky mutual funds: a bond fund of long-term debt securities, denoted D, and a stock fund, denoted E. Statistics for Two Mutual Funds are as follows: Debt Equity Expected return, E(r) 8% 13% Since the assets have different expected returns, the coefficient of variation should be used to determine the best portfolio. Consider an economy where Capital Asset Pricing Model holds. ... Stock A has an expected return of 17.8 percent, and Stock B has an expected return of 9.6 percent. Portfolio Return = (60% * 20%) + (40% * 12%) Portfolio Return = 16.8% Portfolio Return Formula – Example #2. Also, an investor can use the expected return formula for ranking the asset and eventually make the investment as per the ranking and include them in the portfolio. If a … Alternative 1 (F) 17.5% 1.291 .0738. What would the risk-free rate have to be for the two stocks to be correctly priced relative to each other? Alternative 2 (FG) 16.5% -0- .0. What percentage of the portfolio is invested in the stock? 3. c. If a portfolio of the two assets has … 54. 11.6%*Please share working on how to derive to the answer. ... or 17%. How much of the portfolio is invested in the risk-free asset if the portfolio beta is 1.07? $2,000 is invested in X, $5,000 invested in Y, and $3,000 is invested in Z. 10. This portfolio is a special case since all three assets have the same weight. Consider the single factor APT. 2%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio __ and a long position in portfolio _____. The standard deviation of the market portfolio’s return is 18%. The risky asset has an expected return of 11.2 percent and a beta of 1.39. This has been a guide to the Expected Return Formula. The correlation between the two stocks is 0.25 if you form a portfolio where you put 40% of your money in A and 60% in B, what is the expected return and standard deviation for the portfolio? Expected return is the amount of profit or loss an investor anticipates on an investment that has various known or expected rates of return . The standard deviation of the market portfolio’s return is 18%. 54. A risk-free asset currently earns 2.6 percent. According to the CAPM, a security has an equilibrium expected return less than that of the risk-free asset when: a. A. Correct answers: 3 question: A stock has a beta of 1.65 and an expected return of 11 percent. A. Vineet Swarup Requested. Another asset which is risk free is earning 3.25%. In this economy, stocks A and B have the following characteristics: Stock A has and expected return of 22% and a beta of 2. A stock has a beta of 1.31 and an expected return of 12.9 percent. Let’s take an example of a portfolio of stocks and bonds where stocks have a 50% weight and bonds have a weight of 50%. Calculate the expected return of the portfolio. Expected Return Formula – Example #1. However, the risk of Stock A as measured by its variance is 3 times that of Stock B. The stock has produced a total return of 7.48% over the past 12 months compared to -0.3% for the S&P 500. What is the expected return on a portfolio that is equally invested in the two assets? If one gains 5%, the … To calculate expected rate of return, you multiply the expected rate of return for each asset by that asset’s weight as part of the portfolio. Consider a world with only two risky assets, Aand B, and a risk-free asset. It shows that the expected return on a security is equal to the risk-free return plus a risk premium, which is based on the beta of that security. 16 percent B. Recommended Articles. Ch17 - Chapter 17 solution for Intermediate Accounting by Donald E. Kieso, Jerry J. Ch11 ppt Rankin; Sample/practice exam 10 February, questions and answers; Kotler Chapter 7 MCQ - Multiple choice questions with answers; Libro Resuelto Emprendimiento y Gestión Primero Bachillerato Guia; A sample of letter of enumerator addressed to your employer Consider an economy where Capital Asset Pricing Model holds. Portfolio A has an expected return of 17% and standard deviation of 5%. Forecasted Returns, Standard Deviations, and Betas Forecasted Return Standard Deviation Beta Stock X 14.0% 36% 0.8 Stock Y 17.0 25 1.5 Market index 14.0 15 1.0 Risk-free rate 5.0 a. Stock A has an expected return of 14.05% and a beta of 2.2. However, the distribution of possible returns associated with Asset A has a standard deviation of 12 percent, while Asset B’s standard deviation is 8 percent. Asset A has an expected return of 12% and a beta of 1.05. To illustrate the expected return for an investment portfolio, let’s assume the portfolio is comprised of investments in three assets – X, Y, and Z. 1.5%. 23 percent C. 32 percent D. 45 percent Asset A has an expected return of 17% and a standard deviation of 20%. The risk-free asset has an expected return of 3.4 percent. A. View Answer. Solution for Asset A has an expected return of 20% and a standard deviation of 25%. Security B has a beta of 1.20. Nevertheless, the price of the stock dropped by $1.50. a. According to the capital asset pricing model, the expected rate of return on security X with a beta of 1.2 is equal to _____. Calculate expected return and alpha for each stock. Using CAMP [LO4] A stock has a beta of 1.35 and an expected return of 16 percent. The equation for its expected return is as follows: Ep = w1E1 + w2E2 + w3E3. You then add each of those results together. A client has a portfolio of common stocks and fixed-income instruments with a current value of £1,350,000. The risk-free rate is 14%. c. The correlation between the return on the risk-free asset with a constant return over time and the return on a risky asset is always: a. The SML is described by a line drawn from the risk-free rate: expected return is 5 percent, where beta equals 0 through the market return; expected return is 10 percent, where beta equal 1.0. The risk-free rate is 5 percent and the market risk premium, kM - kRF, is 6 percent. -1% B. Enter the email address you signed up with and we'll email you a reset link. Question 147294: Question: A stock has an expected return of 14%, the risk free rate is 4% and the market risk premium is 6% what must the beta of this stock be? The expected return on SDA Corp. common stock is 16%. Expected return on an asset (r a), the value to be calculated; Risk-free rate (r f), the interest rate available from a risk-free security, such as the 13-week U.S. Treasury bill.No instrument is completely without some risk, including the T-bill, which is subject to inflation risk. A) 12% B) 17% C) 18% D) 23% 11. 1 Provided that the two assets are less than perfectly correlated, the risk of the portfolio (measured by the The beta of a portfolio comprised of these two assets is 0.85. Therefore: E (R p) = ΣW i R i where i = 1,2,3 … n. Where W i represents the weight attached to the asset, i, and R i is the asset’s return. The expected return on the market. a. A stock has a beta of 1.35 and an expected return of A stock has a beta of 1.35 and an expected return of 16%. c Buy the asset, since price is expected to increase . .12 .26 .75 .83; Question: Asset A has an expected return of 17% and a standard deviation of 25%. According to the capital asset pricing model, the expected return on a security is: A. negatively and non-linearly related to the security's beta. Pages 24 Ratings 100% (2) 2 out of 2 people found this document helpful; the reward expected to compensate an investor for the taking up the risk … Let’s take an example to understand the calculation of the Expected Return formula in a better manner. b. A. 71 percent B. Stock B has an expected return of 15% and a beta of 0.8. What is the expected return on a portfolio that is equally invested in the two assets? A risk-free asset currentlyu000bearns 4.8%. 7.6%D. The risk free rate is 5%, an the expected return on the market portfolio is 14%. Expected Return = (0.5 x 10.4%) + (0.5 x 3.8%) = 7.10% Asset B has an expected return of 20% and a beta of 1.5. A. The alpha of the stock is _____. Category: Finance. 71 percent B. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Portfolio A has a beta of 1 and an expected return of 21%. b) Calculate the weights of each of these if they are the only 2 holdings in a portfolio which has a beta of 1.00. A portfolio consists of one risky asset and one risk-free asset. Expected return %b. Asset B has an expected return of 20% and a reward-to- variability ratio of .3. It is the government bonds of well-developed countries, either US treasury bonds or German government bonds. Asset A has an expected return of 15% and a reward-to- variability ratio of .4. Stock A has an expected return of 10% and a beta of 1.20. Rp = expected return for the portfolio; w1 = proportion of the portfolio invested in asset 1; R1 = expected return of asset 1; Expected Variance for a Two Asset Portfolio. A stock has a beta of 1.15 and an expected return of 10.4 percent. Christopher owns two risky assets, both of which plot on the security market line. A risk-free asset currently earns 5.1 percent. Her research department has developed the information shown in the following exhibit. The portfolio is composed of a risky asset with an expected rate of return of 12% and a standard deviation of 15% and a treasury bill with a rate of return of 5%. Security A has an expected rate of return of 12% and a beta of 1. Question: Asset A has an expected return of 12% and a beta of 1.05. A stock has a beta of 1.2 and an expected return of 17 percent. Consider an investor is planning to invest in three stocks which is Stock A and its expected return of 18% and worth of the invested amount is $20,000 and she is also interested into own Stock B $25,000, which has an expected return of 12%. Asset A has an expected return of 12% and beta of 0.8. If your portfolio beta is the same as the market portfolio, what proportion of your funds are invested in asset A? The security market line (SML) shows the required return for a given level of systematic risk. Consider an investor is planning to invest in three stocks which is Stock A and its expected return of 18% and worth of the invested amount is $20,000 and she is also interested into own Stock B $25,000, which has an expected return of 12%. The risk - free rate of return is 3.7 percent and the market rate of return is 11.78 percent . A risk-free asset currently earns 5.1 percent. Correlation is measured on a scale of -1.0 to +1.0: If two assets have an expected return correlation of 1.0, that means they are perfectly correlated. Get the detailed answer: Expected Return Year Asset F Asset G Asset H 2016 16% 17% 14% 2017 17 16 15 2018 18 15 16 . A risk-free asset currently earns 4.35 percent. For two risky securities M and J possible rate of returns and their joint probabilities If a portfolio of the two assets has a - 13948480 1.25%. b. The correlation coe cient ˆ AB = 0:4. Stock A has 200 shares outstanding, a price per share of $3.00, an expected return of 16% and a volatility of 30%. 1. (Do not round intermediate calculations. Stock B has an expected return of 7% and a beta of 1. 1%. Problem 12 (NOT GRADED) Your stockbroker is trying to convince you that she has a system to beat the market. The risk-free rate of return is 8%. ER[ ] 0.04 (1.5) (0.08) 0.16=+ × = d. If an investment project with a beta of 0.8 offers an expected return of 9.8 percent, ... On 17 July 2004, ABC Corporation reported an increase of 2 cents in earnings per share (EPS). Expected return % b. Using these assets, you have isolated the three investment alternatives shown in the following table: 9. For instance, if a company’s beta is equal to 1.5 the security has 150% of the volatility of the market average. However, if the beta is equal to 1, the expected return on a security is equal to the average market return. School Waikato University; Course Title FINA 311; Uploaded By internationalkiwi. 17) When assets are positively correlated, they tend to rise or fall together. 17.2%. You must invest all of your money. What is the reward-to- variability ratio (Sharpe… Chapter 11, Ex.17: Using CAPM. A, A B. Stock Z has a beta of .95 and an expected return of 10.3 percent. which produce the lowest possible risk for any given level of expected return. View Answer. 77 percent C. … A risk-free asset currently earns 4.8%.1. The difference between the return of a risky asset and that of a riskless one is termed the risky asset's excess return: xr2 = r2-r1 Since r1 is riskless, the standard deviation of xr2 will equal the standard deviation of r2. If a portfolio of the two assets has a … Which one of the following statements is true given this information ? She intends to liquidate £50,000 from the portfolio at the end of the year to purchase a partnership share in a business. Capital Asset Pricing Model. The expected return of stocks is 15% and the expected return for bonds is 7%. Asset A has an expected return of 15% and a reward-to-variability ratio of .4. A risk-free rate is the minimum rate of return expected on investment with zero risks by the investor. Expected return Year Asset F Asset G Asset H 2007 16% 17% 14% 2008 17 16 15 2009 18 15 16 2010 19 14 17. The risk-free asset has an expected return of 3.4 percent. The expected return on the market portfolio is 15%. _____ of your money should be invested in the risky asset to form a portfolio with an expected rate of return of 9% A) 87% B) 77% C) 67% D) 57% A risk-free asset currently earns 2.4 percent. Security Bhas an expected return of 15% and a standard deviation of 28%. a. The risk-free rate is 5 percent and the market portfolio has an expected rate of return ... What conditions are necessary for a portfolio made up of two assets to have a larger expected return than either of the two assets has individually? The risk-free rate is 8%. What is the reward-to-variability ratio? Stock B has an expected return of 15% and a beta of 0.8.
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