The risk-free rate is 14%. A stock has a beta of 1.48 and an expected return of 17.3 percent. What percentage of the portfolio is invested in the stock? The risky asset has an expected return of 11.2 percent and a beta of 1.39. Problem 17. A. 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? If a portfolio of the two assets has a A stock has a beta of 1.31 and an expected return of 12.9 percent. Stock Z has a beta of .95 and an expected return of 10.3 percent. 32) Security A has an expected rate of return of 22% and a beta of 2.5. 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). Submitted: 16 years ago. The beta of SDA Corp. common stock is 1.25. The beta of a portfolio comprised of these two assets is 0.85. Round the answers to two decimal places in percentage. If a portfolio of the two assets has a beta of .92, what are the portfolio weights? 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? Recommended Articles. The risk-free rate is 8%. A risk-free asset currently earns 4.6 percent. Therefore: E (R p) = W 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 assets return. Her research department has developed the information shown in the following exhibit. 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. The risk-free rate is 14%. The risky asset has an expected return of 11.2 percent and a beta of 1.39. You invest $100 in a portfolio. Expected Return = (0.5 x 10.4%) + (0.5 x 3.8%) = 7.10% Stock A has an expected return of 10% and a beta of 1.20. To illustrate the expected return for an investment portfolio, lets assume the portfolio is comprised of investments in three assets X, Y, and Z. Another asset which is risk free is earning 3.25%. A. Calculate expected return and alpha for each stock. Pages 24 Ratings 100% (2) 2 out of 2 people found this document helpful; a. A risk-free asset currently earns 5.1 percent. If IBM has a beta of 1.2 when the risk-free rate is 6% and the expected return on the market portfolio is 18%, the expected return on IBM is: a. (a) Stock A has an expected return of 18% and a standard deviation of 30%. Enter the email address you signed up with and we'll email you a reset link. Where: Ra = Expected return on an investment Rrf = Risk-free rate Ba = Beta of the investment Rm = Expected return on the market And Risk Premium is the difference between the expected return on market minus the risk free rate (Rm Rrf).. Market Risk Premium. The risk-free rate of return is 8%. 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 4.8%.1. In short, the higher the expected return, the better is the asset. Asset A has a required return of 18% and a beta of 1.4. Security Bhas an expected return of 15% and a standard deviation of 28%. If the correlation between the assets is 0.3 and the risk free rate 5%, calculate the capital market line. b. The calculator uses the following formula to calculate the expected return of a security (or a portfolio): E (R i) = R f + [ E (R m) R f ] i. Since the assets have different expected returns, the coefficient of variation should be used to determine the best portfolio. When it has a beta of zero c. A security never has an equilibrium expected return less than the risk free asset d. None of the above 22. A portfolio has an expected return of 7% with a standard deviation of 13%. $2,000 is invested in X, $5,000 invested in Y, and $3,000 is invested in Z. Alternative 1 (F) 17.5% 1.291 .0738. The expected return of stocks is 15% and the expected return for bonds is 7%. Portfolio analysis You have been given the return data shown in the first table on three assets - F, G, and H - over the period 2007-2010. 10.2%E. 71 percent B. The risk-free rate is 4%. Portfolio B has an expected return of 15% and standard deviation of 5%. Need more help! Category: Finance. Assume that the expected returns for X, Y, and Z have been calculated and found to be 15%, 10%, and 20%, respectively. To find the expected return in an equally weighted portfolio, we can sum the returns of each asset and divide by the number of assets, so the expected return of the portfolio in each state of the economy is: Boom: Rp = (.18 + .04 + .31)/3 Rp = .1767, or 17.67% Portfolio B has a beta of 0 and an expected return of 17%. Written as a formula, we get: Expected Rate of 1.25%. If a portfolio of the two assets has a - 13948480 (Do not round intermediate calculations and enter your answer as a percent or 17%. What is the expected return on a portfolio that is equally invested in the two assets?2. To calculate expected rate of return, you multiply the expected rate of return for each asset by that assets weight as part of the portfolio. Asset B has an expected return of 20% and a reward-to-variability ratio of .3. The market risk premium is the excess return i.e. The standard deviation of the market portfolios return is 18%. 17) When assets are positively correlated, they tend to rise or fall together. A. Asset A has an expected return of 17% and a standard deviation of 25%. Stock B has an expected return of 7% and a beta of 1. Asset A has an expected return of 11% and a beta of 0.7. C. the weighted sum of the securities' expected returns D. the weighted sum of the securities' variances 3. Expected return % b. The risk free rate is 5%, an the expected return on the market portfolio is 14%. Question 17 A stock has a beta of 125 and an expected return of 14 percent A. Asset B has an expected return of 20% and a beta of 1.5. Alternative 2 (FG) 16.5% -0- .0. 77 percent C. 84 percent D. 89 percent E. 92 percent 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. The Capital Asset Pricing Model (CAPM) is a model that describes the relationship between the expected return and risk of investing in a security. Can the expected return on the = 17:07% Note: the other way to calculate E(R P) = 0:30(0:167)+0:7(0:17235) = 17:07% Question 5: What is the expected return on a portfolio that is equally invested in the two assets? A client has a portfolio of common stocks and fixed-income instruments with a current value of 1,350,000. What is the expected return on a porfolio that is equally invested in the two assets? Chapter 17 Investment Management. 1.7%B. If one gains 5%, the 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. What is the expected return on a portfolio that is equally invested in the two assets? 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%. Security B has a beta of 1.20. For instance, if a companys 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. Portfolio Expected Return. The equation for its expected return is as follows: Ep = w1E1 + w2E2 + w3E3. The two securities under consideration both have an expected return, , equal to 15 percent. What is the expected return on an asset with a beta of 1.5? The risk - free rate of return is 3.7 percent and the market rate of return is 11.78 percent . Capital Asset Pricing Model. This combination of one risky asset with a risk-free asset leads to a linear relationship between the portfolio expected return and its standard deviation: E (rp) = rf +-1-f up (5.b) The same applies to all portfolios on CAL2; just replace E (rpi), op in equation 5.b with E 0. c. 1. d. 0.5. b. A. Asset A has an expected return of 15% and a reward-to-variability ratio of .4. Solution provided by the lecturer: State the variables: E(Ri) = 14%, Rf = 4%, market risk premium = 6% We are given all the values for the CAPM except for i of the stock. CAPM Formula. A firm has an expected return on equity of 15 and an aftertax cost of debt of 10 from ADMS 3530 at York University. Combining negatively correlated assets having the same expected return results in a portfolio with a lower level of expected return and a lower level of risk. Portfolio will have the same expected return, not lower A stock has a beta of 1.15 and an expected return of 10.4 percent. The standard deviation of the market portfolios return is 18%. A risk-free asset currently earns 5.1 percent. 23 percent C. 32 percent D. 45 percent E. 54 percent The beta of a portfolio comprised of these two assets is 0.85. Asset A has an expected return of 12% and beta of 0.8. 17.2%. Stock A has an expected return of 14.05% and a beta of 2.2. The security market line (SML) shows the required return for a given level of systematic risk. Expected Return : The expected return on a risky asset, given a probability distribution for the possible rates of return. Using these assets, you have isolated the three investment alternatives shown in the following table: Consider the following two stocks, A and B. Question: Asset A has an expected return of 12% and a beta of 1.05. 77 percent C. According to the capital asset pricing model, what is the expected return on a security with beta of 1? You have $100,000 to invest in a portfolio containing Stock X, Stock Y, and a risk-free asset. If the risk-free rate is 2.2 percent, what is the market risk premium? A risk-free asset currently earns 4.35 percent. Stock B has 300 shares outstanding, a price per share of $4.00, an expected return of 10% and a volatility of 15%. If X has expected return of 30% and abetaof 1.60, Yhas an expected return 71 percent B. 1%. A risk-averse investor would prefer a portfolio using the risk-free asset and _____. A highly risk-averse investor is considering the addition of an asset to a 10-stock portfolio. (4 points) A stock has a beta of 1.2 and an expected return of 17 percent. View Answer. If a portfolio of the two assets has a - 13948480 Solution provided by the lecturer: State the variables: E(Ri) = 14%, Rf = 4%, market risk premium = 6% We are given all the values for the CAPM except for i of the stock. Stock B has an expected return of 12 percent and a standard deviation of 30 percent. Stock B has an expected return of 15% and a beta of 0.8. A risk-free asset currently earns 2.4 percent. Its correlation coefficient with the market is less than 1 b. View Answer. a. 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% 1.125%. A portfolio consists of one risky asset and one risk-free asset. - 1. b. -1% B. 125 Mathematically, a portfolio that combines two assets has an expected return that is the weighted average of the returns on the individual assets. 1. 2. A, A B. b. A. 19. 1 Answer to 17. LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION 17: Using these assets, you have isolated the three investment: Alternatives shown in the following table: Alternative: Investment: 1: 100% of F: 2: 71 percent B. A risk-averse investor would prefer a portfolio using the risk-free asset and _____. A portfolio consists of one risky asset and one risk-free asset. What is the market risk premium? Do not round intermediate calculations Round your; Question: Two-Asset Portfolio Stock A has an expected return of 12% and a standard deviation of 40%. Chapter 11, Ex.17: Using CAPM. (a). Therefore, A (expected return = 14%) is overvalued, and B (expected return = 18%) is undervalued. Stock A has 200 shares outstanding, a price per share of $3.00, an expected return of 16% and a volatility of 30%. How much of the portfolio is invested in the risk-free asset if the portfolio beta is 1.07? Asset A has an expected return of 15% and a reward-to- variability ratio of .4. What percentage of the portfolio is invested in the stock? According to the CAPM, a security has an equilibrium expected return less than that of the risk-free asset when: a. (Do not round intermediate calculations. A risk-free asset currently earns 5.1 percent. Stock B has expected return of 12% and a standard deviation of 36%. What is the expected return on a portfolio that is equally invested in the two assets? Asset A has an expected return of 12% and a beta of 1.05. Enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.) 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 Gestin Primero Bachillerato Guia; A sample of letter of enumerator addressed to your employer A risk-free asset currentlyu000bearns 4.8%. A. asset A B. asset B C. no risky asset D. can't tell from the data given 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%. 1 Provided that the two assets are less than perfectly correlated, the risk of the portfolio (measured by the What is the expected return of a portfolio invested 25% in Stock A and 75% in Stock B? A. 54. Below is an illustration of the CAPM concept. 9. a Sell the asset, which will drive the price up and cause the expected return to drop . The correlation coe cient AB = 0:4. A stock has a beta of 1.35 and an expected return of 16%. Consider an economy where Capital Asset Pricing Model holds. What is the reward-to-variability ratio? 5.7%C. 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. .12 .26 .75 .83; Question: Asset A has an expected return of 17% and a standard deviation of 25%. Asset B has an expected return of 20% and a reward-to- variability ratio of .3. Christopher owns two risky assets, both of which plot on the security market line. 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. 7.6%D. Asset A has an expected return of 17% and a standard deviation of 20%. a. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio __ and a long position in portfolio _____. A risk-free asset currently earns 2.6 percent. 1.5%. Alternative 3 (FH) 16.5% 1.291 .0782. a. Expected return %b. Asset W has an expected return of 17.0 percent and a beta of 1.50. a) What is the expected return on a portfolio that is comprised of 1/2 the high risk stock and 1/2 the risk free asset? 20. The expected return on the market portfolio is 15%. If a What is the reward-to-variability ratio? If a portfolio of the two assets has a beta of 0.95, what are the portfolio weights?3. e. 17.00%. 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. A. Vineet Swarup Requested. Consider an economy where Capital Asset Pricing Model holds. It is the government bonds of well-developed countries, either US treasury bonds or German government bonds. The expected return on the market. Expected Return Formula Example #1. Stock B has an expected return of 20% and a standard deviation of 60%. A risk-free rate is the minimum rate of return expected on investment with zero risks by the investor. However, the risk of Stock A as measured by its variance is 3 times that of Stock B. b. the reward expected to compensate an investor for the taking up the risk The risk-free asset has an expected return of 3.4 percent. 3. If your portfolio beta is the same as the market portfolio, what proportion of your funds are invested in asset A? What must be the expected return on a risk free asset? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Using CAMP [LO4] A stock has a beta of 1.35 and an expected return of 16 percent. The risk-free rate is 8%. For two risky securities M and J possible rate of returns and their joint probabilities In this economy, stocks A and B have the following characteristics: Stock A has and expected return of 22% and a beta of 2. Nevertheless, the price of the stock dropped by $1.50. 3% C. 5% D. 8%. A, which constitutes 40% of this portfolio, has an expected return of 10% and a standard deviation of 20%. Thanks in advance. c. If a portfolio of the two assets has 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. What would the risk-free rate have to be for the two stocks to be correctly priced relative to each other? which produce the lowest possible risk for any given level of expected return. She intends to liquidate 50,000 from the portfolio at the end of the year to purchase a partnership share in a business. 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%. 17. If a portfolio has a positive weight for each asset, can the expected return on the portfolio be greater than the return on the asset in the portfolio that has the highest return? 54. 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. School Waikato University; Course Title FINA 311; Uploaded By internationalkiwi. 23 percent C. 32 percent D. 45 percent Stock A has an expected return of 17.8 percent, and Stock B has an expected return of 9.6 percent. A stock has an expected return of 17.5% and a beta of 1.65. The expected return on SDA Corp. common stock is 16%. The risk free rate is 10%. 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 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%. The variance of the return on the market portfolio is .04 and the expected return on the market portfolio is 20%. The beta of a portfolio comprised of these two assets is 0.85. A stock has a beta of 1.2 and an expected return of 17 percent. X = 4% = Risk - free Rate = Krf. Solution for Asset A has an expected return of 20% and a standard deviation of 25%. Portfolio Return = (60% * 20%) + (40% * 12%) Portfolio Return = 16.8% Portfolio Return Formula Example #2. Note that e2-e1 is the expected value of the difference between the return on asset 2 and the return on asset 1. Portfolio Return = (60% * 20%) + (40% * 12%) Portfolio Return = 16.8% Portfolio Return Formula Example #2. Problem 12 (NOT GRADED) Your stockbroker is trying to convince you that she has a system to beat the market. 21 ) The common stock of Alpha Manufacturers has a beta of 1.24 and an actual expected return of 13.25 percent . What percentage of the portfolio is invested in the stock? Which one of the following statements is true given this information ? 21. Your goal is to create a portfolio that has an expected return of 11.5% and thathas only 70% of the risks of the overall market. Sell the asset, which will drive the price down and cause the expected return to reach the required return . Finance questions and answers. Consider a world with only two risky assets, Aand B, and a risk-free asset. Consider the single factor APT. A risk-free asset currently earns 3.8 percent. Assume the capital asset pricing model holds. Expected return is the amount of profit or loss an investor anticipates on an investment that has various known or expected rates of return . A. The risk-free rate is 4%. Asset A has an expected return of 20% and a standard deviation of 25%. The risk free rate is 10%. What is the reward-to- variability ratio? Which one of the following stock return statistics fluctuates the most over time? However, the distribution of possible returns associated with Asset A has a standard deviation of 12 percent, while Asset Bs standard deviation is 8 percent. Lets take an example to understand the calculation of the Expected Return formula in a better manner. Lets take an example of a portfolio of stocks and bonds where stocks have a 50% weight and bonds have a weight of 50%. Portfolio A has a beta of 1 and an expected return of 21%. 16 percent B. 77 percent C. 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 of A = 0.2 (15%) + 0.5 (10%) + 0.3 (-5%) (That is, a 20%, or.2, probability times a 15%, or.15, return; plus a 50%, or.5, probability times a 10%, or.1, return; plus a 30%, or.3, probability of a return of negative 5%, or -.5) = 3% + 5% 1.5% = 6.5% The variance of the portfolio is calculated as follows: p2 = w1212 + w2222 + 2w1w2Cov1,2. Calculate the expected return of the portfolio. b. Stock B has an expected return of 15% and a beta of 0.8. Portfolio expected return is the sum of each of the individual assets expected returns multiplied by its associated weight. 16 percent B. What is the expected return on a portfolio that is equally invested in the two assets? 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. Stock B has an expected return of 14% and a beta of 1.80. This has been a guide to the Expected Return Formula. Where: E (Ri) is the expected return on the capital asset, Rf is the risk-free rate, E (Rm) is the expected return of the market, i is the beta of the security i. 3. 11.6%*Please share working on how to derive to the answer. A) 12% B) 17% C) 18% D) 23% 11. Asset B has an expected return of 18% and a beta of 1.4. Security A has an expected rate of return of 12% and a beta of 1. a. 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 risk free asset currently earns 4.8 percent. This portfolio is a special case since all three assets have the same weight. You then add each of those results together. 2%. You must invest all of your money. Portfolio A has an expected return of 17% and standard deviation of 5%. According to the capital asset pricing model, a security with a _____. How much of the portfolio is invested in the risk-free asset if the portfolio beta is 1.07?