Problem 13-10 Returns and Standard Deviations [LO1] Consider the following information: Rate of Return if State Occurs Probability of State State of Economy of Economy Stock A Stock B Stock C Boom 20 32 42 22 Good 50 17 13 11 Poor 25 Bust 05 -04 -12 =.07 =.05 -17 -09 8. Your portfolio is invested 28 percent each in A and C, and 44 percent in B. What is the expected return of the portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b-1. What is the variance of this portfolio? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161.) b-2. What is the standard deviation? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Expected return b-1. Variance b-2. Standard deviation % %

5 Consider the following information: Probability of State of State of Economy Boom Good Poor Bust Economy 15 .45 .35 .05 a. Rate of Return if State Occurs a. Expected return b-1. Variance b-2. Standard deviation Stock A Stock B Stock C .36 46 .26 .21 .17 10 -.03 -.17 Your portfolio is invested 22 percent each in A and C, and 56 percent in B. What is the expected return of the portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b-1. What is the variance of this portfolio? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161.) b-2. What is the standard deviation? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) % -.06 -.21 % -.04 -.07

10. Returns and Standard Deviations [LO1] Consider the following information: Rate of Return If State Occurs

11.9       Returns and Standard Deviations Consider the following information: State of Economy                             Probability of SE               Rate of Return if State Occurs.                                                                                                                 Stock A                 Stock B                 Stock C Boom                                                                    .20                          .24                          .45                          .33 Good                                                                     .35                          .09                          .10                          .15 Poor                                                                      .40                          .03                          -.10                        -.05 Bust                                                                       .05                          -.05                        -.25…

15 [Question text] Based on the following information, what is the expected return for the following stock?     State of Economy Probability of State of Economy Rate of Return if State Occurs Boom 0.06 -6% Normal 0.74 7% Recession 0.20 18%   Select one: A. 8.80 percent B. 8.23 percent C. 8.53 percent D. 8.42 percent

Portfolio Expected return Standard deviation Q 7.8% 10.5% R 10.0% 14.0% S 4.6% 5.0% T 11.7% 18.5% U 6.2% 7.5% What is the minimum level of risk that would be necessary for an investment to earn 7.0%? What is the composition of the portfolio along the Capital Market Line (CML) that will generate that expected return? Rf= 3%

Required Return Beta Risk-Free Rate Market Return A 12.5% 0.90 8% ? B 9.0% 1.3 ? 8% C 10.0% ? 7.5% 10.5% a. What is the market return? b. What is the Risk-free rate? c. What is the beta?

Question 16 a. Based on the following information, calculate the expected return and standard deviation for each of the following stocks. What are the covariance and correlation between the returns of the two stocks? Calculate the portfolio return and portfolio standard deviation if you invest equally in each asset. Returns State of Economy Prob J K Recession 0.25 -0.02 0.034 Normal 0.6 0.138 0.062 Boom 0.15 0.218 0.092 b. A portfolio that combines the risk-free asset and the market portfolio has an expected return of 7 percent and a standard deviation of 10 percent. The risk-free rate is 4 percent, and the Page 7 of 33 expected return on the market portfolio is 12 percent. Assume the capital asset pricing model holds. What expected rate of return would a security earn if it had a .45 correlation with the market portfolio and a standard deviation of 55 percent? c. Suppose the risk-free rate is 4.2 percent and the market portfolio has an expected return of 10.9 percent. The market…

Problem 13-10 Returns and Standard Deviations [LO1] Consider the following information: State of Economy Probability of State of Economy Rate of Return if State Occurs Stock A Stock B Stock C Boom .15 .37 .47 .27 Good .45 .22 .18 .11 Poor .35 −.04 −.07 −.05 Bust .05 −.18 −.22 −.08 a. Your portfolio is invested 20 percent each in A and C, and 60 percent in B. What is the expected return of the portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b-1. What is the variance of this portfolio? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161.) b-2. What is the standard deviation? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Question Fourteen You are given the following data for four portfolios over a recent 10-year period: a) b) c) d) Portfolio 1 2 3 4 Risk Free Market Annual Return% Standard Deviation % 9 12 10 14 10 15 12 17 6 13 Rank these portfolios using the Sharpe Measure. Rank these portfolios using the Treynor Measure. Rank these portfolios using the Jensen Measure 11 Explain any differences that you observe in the rankings. Portfolio Beta 1.15 1.20 1.50 1.45