1. You own a portfolio that has $2,500 invested in Stock A and $3,600 invested in Stock B. If the expected returns on these stocks are 11 percent and 15 percent, respectively, what is the expected return on the portfolio?
2. Consider the following information:
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|
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Rate of Return if State Occurs
|
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State of Economy
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Probability of State of Economy
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Stock A
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Stock B
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Recession
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0.20
|
0.03
|
-0.22
|
|
Normal
|
0.70
|
0.07
|
0.14
|
|
Boom
|
0.10
|
0.15
|
0.33
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|
|
a. Calculate the expected return for Stock A.
b. Calculate the expected return for Stock B.
c. Calculate the standard deviation for Stock A.
d. Calculate the standard deviation for Stock B.
3. Consider the following information:
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Rate of Return if State Occurs
|
|
State of Economy
|
Probability of
State of Economy
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Stock A
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Stock B
|
Stock C
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Boom
|
0.62
|
0.17
|
0.27
|
0.33
|
|
Bust
|
0.38
|
0.11
|
0.17
|
-0.05
|
|
|
a. What is the expected return on an equally weighted portfolio of these three stocks?
b. What is the variance of a portfolio invested 20 percent each in A and B and 60 percent in C?
4. You own a stock portfolio invested 30 percent in Stock Q, 20 percent in Stock R, 5 percent in Stock S, and 45 percent in Stock T. The betas for these four stocks are 1.4, 1.49, 0.94, and 1.49, respectively. What is the portfolio beta?
5. A stock has a beta of 1.1, the expected return on the market is 9 percent, and the risk-free rate is 3.15 percent. What must the expected return on this stock be?
6. A stock has an expected return of 13 percent, its beta is 1.3, and the expected return on the market is 11 percent. What must the risk-free rate be?