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1. You purchased a share of stock for $49. One year later you received $2.90 as dividend and sold the share for $48. Your holding-period return was __________.
2. You invest $1,200 in a complete portfolio. The complete portfolio is composed of a risky asset with an expected rate of return of 13% and a standard deviation of 20% and a Treasury bill with a rate of return of 4%. __________ of your complete portfolio should be invested in the risky portfolio if you want your complete portfolio to have a standard deviation of 7%.
3. Consider the following table:
ScenarioProbabilityStock Fund
Rate of ReturnBond Fund
Rate of Return
Severe recession0.10−35%−14%
Mild recession0.20−15%20%
Normal growth0.4020%13%
Boom0.3025%−10%
Required:
a. Calculate the values of mean return and variance for the stock fund. (Do not round intermediate calculations. Round “Mean return” value to 1 decimal place and “Variance” to 2 decimal places.)
b. Calculate the value of the covariance between the stock and bond funds. (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)
4. A stock has a correlation with the market of 0.56. The standard deviation of the market is 29%, and the standard deviation of the stock is 37%. What is the stock’s beta?
5. Here are data on two companies. The T-bill rate is 4.8% and the market risk premium is 5.9%.
Company$1 Discount StoreEverything $5
Forecast return12%11%
Standard deviation of returns12%14%
Beta1.61.0
Required:
What would be the expected rate of return for each company, according to the capital asset pricing model (CAPM)? (Round your answers to 2 decimal places.)
6. Consider the following information:
PortfolioExpected ReturnBeta
Risk-free7%0
Market12.21.0
A11.01.6
Required:
a. Calculate the return predicted by CAPM for a portfolio with a beta of 1.6. (Round your answer to 2 decimal places.)
b. What is the alpha of portfolio A. (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)
7. A share of stock is now selling for $115. It will pay a dividend of $9 per share at the end of the year. Its beta is 1.0. What must investors expect the stock to sell for at the end of the year? Assume the risk-free rate is 5% and the expected rate of return on the market is 14%. (Round your answer to 2 decimal places.)
8. Here are data on two companies. The T-bill rate is 4.6% and the market risk premium is 5.6%.
Company$1 Discount StoreEverything $5
Forecast return12%11%
Standard deviation of returns11%13%
Beta1.51.0
Required:
What would be the expected rate of return for each company, according to the capital asset pricing model (CAPM)? (Round your answers to 2 decimal places.)
9. What must be the beta of a portfolio with E(rP) = 11.80%, if rf = 6% and E(rM) = 10%? (Round your answer to 2 decimal places.)
10. Consider the following table, which gives a security analyst’s expected return on two stocks and the market index in two scenarios:
ScenarioProbabilityMarket ReturnAggressive StockDefensive Stock
10.56%2.1%3.6%
20.5162510
a. What are the betas of the two stocks? (Round your answers to 2 decimal places.)
b. What is the expected rate of return on each stock? (Round your answers to 2 decimal places.)
c. If the T-bill rate is 8%, what are the alphas of the two stocks? (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.)
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NB: We do not resell papers. Upon ordering, we do an original paper exclusively for you.
