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.)