You are given the following information for Securities J and K for the coming year: State of Nature Probability Return J Return K 1 20.00% 14.00% 14.00% 2 19.00% 16.00% 3 16.00% 25.00% You create a portfolio, with 40 percent of your money invested in Security K, and the rest of your money invested in Security J. Given this information, determine the standard deviation of this portfolio for the coming year. O 0.0301 O 0.0239 O 0.0195 O 0.0263 50.00% 30.00% 0.0154
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- For the upcoming year, the risk-free rate is 2 percent, and the expected return to the market is 7 percent, and the standard deviation of the market is 20 percent. You are also given the following covariance matrix for Securities J, K, and L. Covariance Security J Security K Security J 0.0012532 0.0010344 Security K 0.0010344 0.0023717 0.0013558 Security L 0.0019711 0.0013558 0.0048442 Also assume that you form a portfolio by putting 40 percent of your funds in Security J, O percent of your funds in Security K, and 60 percent of your funds in Security L. Based on this information, determine the required return of the resulting portfolio, based on the Capital Market Line (CML). O 3.17% O 2.94% O 3.49% O 3.34% Security L 0.0019711 O 3.64%For the upcoming year, the risk-free rate is 2 percent, and the expected return to the market is 7 percent. You are also given the following covariance matrix for Securities J,K, andL. \table[[Covariance,Security J,Security K,Security L],[Security J,0.0012532,0.0010344,0.0019711],[Security K,0.0010344,0.0023717,0.0013558],[Security L,0.0019711,0.0013558,0.0048442]] Also assume that you form a portfolio by putting 0 percent of your funds in Security J, 40 percent of your funds in Security K, and 60 percent of your funds in Security L. Based on this information, determine the standard deviation of the resulting portfolio. ◻ 6.47% 5.27% 4.98% 5.82% 4.77%A portrollo consists of assets with the following expected returns: Technology stocks Pharmaceutical stocks Utility stocks Savings account a. What is the expected return on the portfolio if the investor spends an equal amount on each asset? Round your answer to two decimal places. % 26% 16 9 4 b. What is the expected return on the portfolio if the investor puts 53 percent of available funds in technology stocks, 15 percent in pharmaceutical stocks, 14 percent in utility stocks, and 18 percent in the savings account? Round your answer to two decimal places. %
- Write the equation of the Security Market Line (SML). Compute and draw theSML when the expected return of the NASDAQ index (market portfolio) is17% and the return to the risk-free asset is 7%Suppose you have portfolio of four stocks Stock A, B, C and D, Total investment in these stocks is equal to 2019331015 $, Beta of these stocks is 1.5, (0.5), 1.25, and 0.75 and proportion invested is 22%, 20%, 30%, and remaining in D. If the Risk free rate is 6% and market rate of return is 15%. Calculate a) Investment in each stock. b) Market premium c) Required Rate of return for each stock. d) Required rate of return of Portfolio. e) If expected rate of return of stock A is 10%, what do you think if it is overvalued or undervalued.What is the stand-alone risk? Use the scenario data to calculate the standard deviation of the bonds return for the next year.
- You have formed a portfolio of five securities. The portfolio weights and betas of the individual securities are as follows: Security wi βi 1 .55 1.5 2 .25 0.2 3 .15 -0.5 4 .30 0.5 5 0.8 What would be the beta of this portfolio?Consider an investment portfolio that consists of three different stocks, with the amount invested in each asset shownbelow. Assume the risk-free rate is 2.5% and the market risk premium is 6%. Use this information to answer thefollowing questions.Stock Weights BetasChesapeake Energy 25% 0.8Sodastream 50% 1.3Pentair 25% 1.0a) Compute the expected return for each stock using the CAPM and assuming that the stocks are all fairly priced.b) Compute the portfolio beta and the expected return on the portfolio.c) Now assume that the portfolio only includes 50% invested in Pentair and 50% invested in Sodastream (i.e., a twoassetportfolio). The yearly-return standard deviation of Pentair is 48% and the yearly-return standard deviation ofSodastream is 60%. The correlation coefficent between Pentair’s returns and Sodastream’s returns is 0.3 What is theexpected yearly-return standard deviation for this portfolio?Bond valuation related problems should be solved by using a financial calculator or MS excel spreadsheet. Accordingly, you must show the values of all relevant time valu of money variables If D1 = $1.50 g (which is constant) = 6.5%, Po = $56, what is the stock's expected capital gains yield for the coming year?
- The following portfolios are being considered for investment. During the period under consideration, RFR = 0.07. Portfolio Return Beta P 0.15 1.00 0.05 Q 0.09 0.50 0.03 R. 0.21 1.30 0.10 0.18 1.20 0.06 Market 0.12 1.00 0.04 a. Compute the Sharpe measure for each portfolio and the market portfolio. Round your answers to three decimal places. Portfolio Sharpe measure P Q R Market b. Compute the Treynor measure for each portfolio and the market portfolio. Round your answers to three decimal places. Portfolio Treynor measure P Q R Market c. Rank the portfolios using each measure, explaining the cause for any differences you find in the rankings. Portfolio Rank (Sharpe measure) Rank (Treynor measure) P |-Select- v |-Select- v Q -Select- v -Select- V R. -Select- V -Select- v -Select- v -Select- v Market -Select- v -Select- v -Select- v is poorly diversified since it has a high ranking based on the -Select- but a much lower ranking with the -Select-The following data are available to you as portfolio manager: Security Estimated return (%) Beta A 40 3.0 B 35 2.5 C 30 1.0 D 17.5 1.8 E 20.0 1.5 Market Index 25 2.0 Government Security 17 0 In terms of the security market line, which of the securities listed above are underpriced? Assuming that a portfolio is constructed using equal proportions of the five securities listed above, calculate the expected return and risk of such a portfolioThe following portfolios are being considered for investment. During the period under consideration, RFR = 0.08. Portfolio Return Beta σi P 0.14 1.00 0.05 Q 0.20 1.30 0.11 R 0.10 0.60 0.03 S 0.17 1.20 0.06 Market 0.12 1.00 0.04 Compute the Sharpe measure for each portfolio and the market portfolio. Round your answers to three decimal places. Portfolio Sharpe measure P Q R S Market Compute the Treynor measure for each portfolio and the market portfolio. Round your answers to three decimal places. Portfolio Treynor measure P Q R S Market