This portfolio is a special case since all three assets have the same weight. a. Asset A has an expected return of 15% and a reward-to-variability ratio of .4. Christopher owns two risky assets, both of which plot on the security market line. 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. 17.2%. This has been a guide to the Expected Return Formula. 3. A, A B. What percentage of the portfolio is invested in the stock? A portfolio consists of one risky asset and one risk-free asset. Enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.) 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 portfolio that combines the risk-free asset and the market portfolio has an expected return of 15% and a standard deviation of 18%. a. 11.6%*Please share working on how to derive to the answer. 10. Portfolio A has an expected return of 17% and standard deviation of 5%. 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%. 71 percent B. 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? The security market line (SML) shows the required return for a given level of systematic risk. 21 ) The common stock of Alpha Manufacturers has a beta of 1.24 and an actual expected return of 13.25 percent . 3% C. 5% D. 8%. Stock B has an expected return of 12 percent and a standard deviation of 30 percent. A risk-free asset currently earns 2.4 percent. A. Enter the email address you signed up with and we'll email you a reset link. Problem 17. 9. If a Expected Return Formula Example #1. To illustrate the expected return for an investment portfolio, lets assume the portfolio is comprised of investments in three assets X, Y, and Z. 23 percent C. 32 percent D. 45 percent E. 54 percent She intends to liquidate 50,000 from the portfolio at the end of the year to purchase a partnership share in a business. A. where: w n refers to the portfolio weight of each asset and E n its expected return. 16 percent B. If a portfolio of the two assets has a beta of .92, what are the portfolio weights? The beta of a portfolio comprised of these two assets is 0.85. Written as a formula, we get: Expected Rate of Stock B has 300 shares outstanding, a price per share of $4.00, an expected return of 10% and a volatility of 15%. Proposition II of MM states that the expected return on assets increases as the debtequity ratio increases . Re = 7% + 2 (12% 7%) = 17%. 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 stock has produced a total return of 7.48% over the past 12 months compared to -0.3% for the S&P 500. 77 percent C. Stock B has an expected return of 7% and a beta of 1. The risk free rate is 10%. Lets take an example to understand the calculation of the Expected Return formula in a better manner. Using these assets, you have isolated the three investment alternatives shown in the following table: Stock B has expected return of 12% and a standard deviation of 36%. Asset A has a required return of 18% and a beta of 1.4. 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. 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. Portfolio B has an expected return of 15% and standard deviation of 5%. The risk-free rate is 4%. What percentage of the portfolio is invested in the stock? What is the expected return on a portfolio that is equally invested in the two assets?2. 1 Answer to 17. The alpha of the stock is _____. Therefore, A (expected return = 14%) is overvalued, and B (expected return = 18%) is undervalued. Correct answers: 3 question: A stock has a beta of 1.65 and an expected return of 11 percent. School Waikato University; Course Title FINA 311; Uploaded By internationalkiwi. A stock has an expected return of 17.5% and a beta of 1.65. Chapter 11, Ex.17: Using CAPM. The beta of SDA Corp. common stock is 1.25. 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. 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. 0. c. 1. d. 0.5. b. The variance of the return on the market portfolio is .04 and the expected return on the market portfolio is 20%. The standard deviation of the market portfolios return is 18%. Stock Z has a beta of .95 and an expected return of 10.3 percent. Category: Finance. A. 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 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? If X has expected return of 30% and abetaof 1.60, Yhas an expected return a Sell the asset, which will drive the price up and cause the expected return to drop . Assume that you have $330,000 invested in 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. The risk-free rate is 8%. A stock has a beta of 1.48 and an expected return of 17.3 percent. A stock has a beta of 1.48 and an expected return of 17.3 percent. 17. 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. 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. (4 points) A stock has a beta of 1.2 and an expected return of 17 percent. The risk-free rate is 8%. A stock has a beta of 1.2 and an expected return of 17 percent. Asset A has an expected return of 11% and a beta of 0.7. Consider the single factor APT. 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? (Do not round intermediate calculations and enter your answer as a percent The risk-free asset has an expected return of 3.4 percent. Security B has a beta of 1.20. 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 Pages 24 Ratings 100% (2) 2 out of 2 people found this document helpful; .12 .26 .75 .83; Question: Asset A has an expected return of 17% and a standard deviation of 25%. 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 risk-free asset currently earns 4.6 percent. 32) Security A has an expected rate of return of 22% and a beta of 2.5. What would the risk-free rate have to be for the two stocks to be correctly priced relative to each other? According to the CAPM, a security has an equilibrium expected return less than that of the risk-free asset when: a. A stock has a beta of 1.15 and an expected return of 10.4 percent. In short, the higher the expected return, the better is the asset. Portfolio Return = (60% * 20%) + (40% * 12%) Portfolio Return = 16.8% Portfolio Return Formula Example #2. A) 12% B) 17% C) 18% D) 23% 11. What percentage of the portfolio is invested in the stock? For two risky securities M and J possible rate of returns and their joint probabilities Which one of the following statements is true given this information ? A portfolio has an expected return of 7% with a standard deviation of 13%. If the risk-free rate is 2.2 percent, what is the market risk premium? A risk-free asset currently earns 5.1 percent. A portfolio consists of one risky asset and one risk-free asset. Consider a world with only two risky assets, Aand B, and a risk-free asset. c Buy the asset, since price is expected to increase . Question: Asset A has an expected return of 12% and a beta of 1.05. Expected return uses historical returns and calculates the mean of an anticipated return based on the weighting of assets in a portfolio. What is the expected return on a portfolio that is equally invested in the two assets? a. b. Nevertheless, the price of the stock dropped by $1.50. c. If a portfolio of the two assets has Asset A has an expected return of 17% and a standard deviation of 20%. Asset A has an expected return of 15% and a reward-to- variability ratio of .4. Consider an economy where Capital Asset Pricing Model holds. Since the assets have different expected returns, the coefficient of variation should be used to determine the best portfolio. 1.7%B. The risk-free rate is 14%. Consider the following two stocks, A and B. Consider an economy where Capital Asset Pricing Model holds. 71 percent B. A risk-free asset currently earns 3.8 percent. Portfolio B has a beta of 0 and an expected return of 17%. 1.25%. Stock A has an expected return of 14.05% and a beta of 2.2. 1. If a portfolio of the two assets has a Stock B has an expected return of 15% and a beta of 0.8. A risk-free asset currently earns 4.8%.1. A risk free asset currently earns 4.8 percent. You must invest all of your money. What is the expected return on an asset with a beta of 1.5? A. 19. Security Bhas an expected return of 15% and a standard deviation of 28%. 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% Stock A has an expected return of 17.8 percent, and Stock B has an expected return of 9.6 percent. A risk-averse investor would prefer a portfolio using the risk-free asset and _____. 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? 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 5.7%C. (Do not round intermediate calculations. The Capital Asset Pricing Model (CAPM) is a model that describes the relationship between the expected return and risk of investing in a security. $2,000 is invested in X, $5,000 invested in Y, and $3,000 is invested in Z. The risk free rate is 5%, an the expected return on the market portfolio is 14%. 21. A. Her research department has developed the information shown in the following exhibit. Expected return equals some risk-free rate (generally the prevailing U.S. Treasury note or bond rate) plus a risk premium (the difference between the historic market return, based upon a well diversified index such as the S&P 500 and the historic What is the reward-to-variability ratio? The two securities under consideration both have an expected return, , equal to 15 percent. The beta of a portfolio comprised of these two assets is 0.85. Recommended Articles. 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 expected return of stocks is 15% and the expected return for bonds is 7%. 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: 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%. (a) Stock A has an expected return of 18% and a standard deviation of 30%. 125 Mathematically, a portfolio that combines two assets has an expected return that is the weighted average of the returns on the individual assets. Another asset which is risk free is earning 3.25%. Asset B has an expected return of 20% and a beta of 1.5. A highly risk-averse investor is considering the addition of an asset to a 10-stock portfolio. What must be the expected return on a risk free asset? View Answer. According to the capital asset pricing model, a security with 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 stock has a beta of 1.35 and an expected return of 16%. A stock has a beta of 1.31 and an expected return of 12.9 percent. e. 17.00%. However, the risk of Stock A as measured by its variance is 3 times that of Stock B. A risk-free rate is the minimum rate of return expected on investment with zero risks by the investor. Stock B has an expected return of 15% and a beta of 0.8. The standard deviation of the market portfolios return is 18%. a. Asset B has an expected return of 20% and a reward-to- variability ratio of .3. 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 expected return on SDA Corp. common stock is 16%. Portfolio Expected Return. 77 percent C. 84 percent D. 89 percent E. 92 percent Expected Return : The expected return on a risky asset, given a probability distribution for the possible rates of return. Question 17 A stock has a beta of 125 and an expected return of 14 percent A. 2. 1.5%. Portfolio expected return is the sum of each of the individual assets expected returns multiplied by its associated weight. What is the reward-to-variability ratio? A risk-free asset currently earns 4.35 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. Alternative 1 (F) 17.5% 1.291 .0738. Portfolio Return = (60% * 20%) + (40% * 12%) Portfolio Return = 16.8% Portfolio Return Formula Example #2. _____ 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% View Answer. 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). The risk-free rate is 5 percent and the market risk premium, kM - kRF, is 6 percent. If the correlation between the assets is 0.3 and the risk free rate 5%, calculate the capital market line. If a portfolio of the two assets has a beta of 0.95, what are the portfolio weights?3. The equation for its expected return is as follows: Ep = w1E1 + w2E2 + w3E3. 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. A stock has a beta of 1.2 and an expected return of 17 percent. If a portfolio of the two assets has a - 13948480 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 The risky asset has an expected return of 11.2 percent and a beta of 1.39. Sell the asset, which will drive the price down and cause the expected return to reach the required return . If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio __ and a long position in portfolio _____. You invest $100 in a portfolio. A risk-free asset currently earns 5.1 percent. a. 10.2%E. Chapter 17 Investment Management. 77 percent C. Stock B has an expected return of 14% and a beta of 1.80. 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. A firm has an expected return on equity of 15 and an aftertax cost of debt of 10 from ADMS 3530 at York University. The expected return on the market. 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, which constitutes 40% of this portfolio, has an expected return of 10% and a standard deviation of 20%. Solution for Asset A has an expected return of 20% and a standard deviation of 25%. b. A risk-free asset currently earns 5.1 percent. The risk-free rate of return is 8%. A. Capital Asset Pricing Model. 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. What is the expected return on a portfolio that is equally invested in the two assets? 23 percent C. 32 percent D. 45 percent CAPM Formula. the reward expected to compensate an investor for the taking up the risk 7.6%D. Round the answers to two decimal places in percentage. Portfolio A has a beta of 1 and an expected return of 21%. 20. 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. which produce the lowest possible risk for any given level of expected return. The risk-free rate is 4%. 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%. 1 Provided that the two assets are less than perfectly correlated, the risk of the portfolio (measured by the According to the capital asset pricing model, what is the expected return on a security with beta of 1? - 1. b. 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. Using CAMP [LO4] A stock has a beta of 1.35 and an expected return of 16 percent. 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? A risk-free asset currently earns 4.6 percent. Below is an illustration of the CAPM concept. Asset A has an expected return of 12% and beta of 0.8. A. Asset A has an expected return of 12% and a beta of 1.05. The market expected rate of return is 8%, and the risk-free rate is 5%. Submitted: 16 years ago. X = 4% = Risk - free Rate = Krf. If your portfolio beta is the same as the market portfolio, what proportion of your funds are invested in asset A? You have $100,000 to invest in a portfolio containing Stock X, Stock Y, and a risk-free asset. What is the expected return on a porfolio that is equally invested in the two assets? Its correlation coefficient with the market is less than 1 b. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) What is the reward-to- variability ratio (Sharpe A risk-free asset currentlyu000bearns 4.8%. A risk-averse investor would prefer a portfolio using the risk-free asset and _____. b. 17) When assets are positively correlated, they tend to rise or fall together. Vineet Swarup Requested. (a). Stock B has an expected return of 20% and a standard deviation of 60%. 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% 2%. Expected return % b. 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. According to the capital asset pricing model, the expected rate of return on security X with a beta of 1.2 is equal to _____. The risk - free rate of return is 3.7 percent and the market rate of return is 11.78 percent . 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. In this economy, stocks A and B have the following characteristics: Stock A has and expected return of 22% and a beta of 2. Assume that the expected returns for X, Y, and Z have been calculated and found to be 15%, 10%, and 20%, respectively. b. -1% B. 1%. 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%. How much of the portfolio is invested in the risk-free asset if the portfolio beta is 1.07? What is the expected return of a portfolio invested 25% in Stock A and 75% in Stock B? 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. 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. Alternative 3 (FH) 16.5% 1.291 .0782. Expected return %b. Problem 12 (NOT GRADED) Your stockbroker is trying to convince you that she has a system to beat the market. 1.125%. If one gains 5%, the 54. A risk-free asset currently earns 2.6 percent. How much of the portfolio is invested in the risk-free asset if the portfolio beta is 1.07? 54. Calculate expected return and alpha for each stock. Need more help! The expected return on the market portfolio is 15%. or 17%. Calculate the expected return of the portfolio. 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. Thanks in advance. The beta of a portfolio comprised of these two assets is 0.85. If a portfolio of the two assets has a - 13948480 71 percent B. Finance questions and answers. A. asset A B. asset B C. no risky asset D. can't tell from the data given 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? What is the expected return on a portfolio that is equally invested in the two assets? The risk-free asset has an expected return of 3.4 percent. Assume the capital asset pricing model holds. The market risk premium is the excess return i.e. The risky asset has an expected return of 11.2 percent and a beta of 1.39. Security A has an expected rate of return of 12% and a beta of 1. 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: Asset A has an expected return of 17% and a standard deviation of 25%. Lets take an example of a portfolio of stocks and bonds where stocks have a 50% weight and bonds have a weight of 50%. The risk-free rate is 14%. What is the expected return on a portfolio that is equally invested in the two assets? The variance of the portfolio is calculated as follows: p2 = w1212 + w2222 + 2w1w2Cov1,2. Stock A has 200 shares outstanding, a price per share of $3.00, an expected return of 16% and a volatility of 30%. It is the government bonds of well-developed countries, either US treasury bonds or German government bonds. What is the market risk premium? 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? Alternative 2 (FG) 16.5% -0- .0. Asset W has an expected return of 17.0 percent and a beta of 1.50. 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. 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%. C. the weighted sum of the securities' expected returns D. the weighted sum of the securities' variances 3. A. Question 17 a stock has a beta of 125 and an expected. Asset B has an expected return of 18% and a beta of 1.4. What is the expected return on a portfolio that is equally invested in the two assets? 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. 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. 3. Asset B has an expected return of 20% and a reward-to-variability ratio of .3. The correlation coe cient AB = 0:4. Note that e2-e1 is the expected value of the difference between the return on asset 2 and the return on asset 1. 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.