Chapter 13 â Return, Risk,
& the Security Market Line
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?(Do not round your intermediate
calculations.)
2.Consider the following information:
Rate of Return
if State Occurs
State of Economy
Probability of
State of Economy
Stock A
Stock B
Recession
0.20
0.03
-0.22
Normal
0.70
0.07
0.14
Boom
0.10
0.15
0.33
a. Calculate the expected return for Stock A. (Do not round
your intermediate calculations.)
b. Calculate the expected return for Stock B. (Do not round
your intermediate calculations.)
c. Calculate the standard deviation for Stock A. (Do not
round your intermediate calculations.)
d. Calculate the standard deviation for Stock B. (Do not
round your intermediate calculations.)
3.Consider the following information:
Rate of Return
if State Occurs
State of Economy
Probability of
State of Economy
Stock A
Stock B
Stock C
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? (Do not round your intermediate
calculations.)
b. What is the variance of a portfolio invested 20 percent
each in A and B and 60 percent in C? (Do not round your intermediate calculations.)
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? (Do not round your intermediate calculations.)