1. Acne Corp. has a beta of 0.82. The risk-free rate of return is 4.25 percent and the market rate of return is 14.60 percent. Find
a. The stock's required rate of return
b. The y intercept value (vertical axis) on the Security Market Line. (hint: zero beta on horizontal axis)
2. What is the expected (or required) return on this portfolio?
Stock Expected
Return Number
of Shares Stock
Price A 12% 300 $28 B 7% 500 $10 C 15% 600 $13
3. What is the expected (or required) return on a portfolio that is equally weighted between stocks K and L given the following information?
Returns if State Occurs State of
Economy Probability of
State of Economy Stock K Stock L Boom 25% 16% 13% Normal 75% 12% 8%
1. Acne Corp. has a beta of 0.82. The risk-free rate of return is 4.25 percent and the market rate of return is 14.60 percent. Find
a. The stock's required rate of return
b. The y intercept value (vertical axis) on the Security Market Line. (hint: zero beta on horizontal axis)
2. What is the expected (or required) return on this portfolio?
| Stock | Expected Return | Number of Shares | Stock Price |
|---|---|---|---|
| A | 12% | 300 | $28 |
| B | 7% | 500 | $10 |
| C | 15% | 600 | $13 |
3. What is the expected (or required) return on a portfolio that is equally weighted between stocks K and L given the following information?
| Returns if State Occurs | |||
|---|---|---|---|
| State of Economy | Probability of State of Economy | Stock K | Stock L |
| Boom | 25% | 16% | 13% |
| Normal | 75% | 12% | 8% |
Related questions
Consider the following information:
| State of | Probability of State | Rate of Return if State Occurs | |||||||||||
| Economy | of Economy | Stock A | Stock B | Stock C | |||||||||
| Boom | .66 | .09 | .03 | .24 | |||||||||
| Bust | .34 | .13 | .19 | â | .04 | ||||||||
| | |||||||||||||
a. What is the expected return on an equally weighted portfolio of these three stocks? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Expected return %
b. What is the variance of a portfolio invested 21 percent each in A and B and 58 percent in C? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., 32.16161.)
Variance of a portfolio
Consider the following information:
| State of | Probability of State | Rate of Return if State Occurs | |||||||||||
| Economy | of Economy | Stock A | Stock B | Stock C | |||||||||
| Boom | .69 | .12 | .06 | .37 | |||||||||
| Bust | .31 | .26 | .32 | â | .17 | ||||||||
a. What is the expected return on an equally weighted portfolio of these three stocks? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Expected return %
b. What is the variance of a portfolio invested 24 percent each in A and B and 52 percent in C? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., 32.16161.)
Variance of a portfolio
Problem 11-25 Portfolio Returns and Deviations [LO 2]
| Consider the following information on a portfolio of three stocks: |
| State of Economy | Probability of State of Economy | Stock A Rate of Return | Stock B Rate of Return | Stock C Rate of Return |
| Boom | .13 | .02 | .32 | .50 |
| Normal | .55 | .10 | .22 | .20 |
| Bust | .32 | .16 | â.21 | â.35 |
| Required: | |
| (a) | If your portfolio is invested 40 percent each in A and B and 20 percent in C, what is the portfolioâs expected return, the variance, and the standard deviation? (Do not round intermediate calculations. Round your variance answer to 5 decimal places (e.g., 32.16161) and input your other answers as a percentage rounded to 2 decimal places (e.g., 32.16).) |
| Expected return | % |
| Variance | |
| Standard deviation | % |
| (b) | If the expected T-bill rate is 4.25 percent, what is the expected risk premium on the portfolio? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) |
| Expected risk premium | % |
