Question

Suppose that there are only two stocks, X and Y, listed in a market. There are...

Suppose that there are only two stocks, X and Y, listed in a market. There are 200 outstanding shares of stock X and 600 outstanding shares of stock Y. Current prices per share are pX = 40$ and pY = 20$. (i) What is the market portfolio in this market? Suppose that the expected returns on stocks X and Y are μX = 10% and μY = 20%. Standard deviation of returns are σX = 15% and σY = 30%. Covariance between the returns is zero, that is σXY = 0. (ii) What are the expected return and the standard deviation of return on the market portfolio? 1 (iii) Calculate market betas, βX and βY , for stocks X and Y . Suppose that the risk-free rate of return is r0 = 8%. (iv) Verify that the Security Market Line holds for both stocks.

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Stocks X, Y, Z are currently traded at PX = $10, PY = $8, and PZ...
Stocks X, Y, Z are currently traded at PX = $10, PY = $8, and PZ = $15. Their standard deviations of the returns are σX = 30%, σY = 15%, and σZ = 20%. The return correlations between: [1]XandYis-0.7,[2]XandZis0.2,and[3]YandZis0.5. a. What is the standard deviation of the returns of the equal-weighted portfolio of Stock X and Y? b. What is the standard deviation of the returns of the value-weighted portfolio of Stock X and Z?
Summary statistics for returns on two stocks X and Y are listed below. Mean Variance Stock...
Summary statistics for returns on two stocks X and Y are listed below. Mean Variance Stock X 4.83% 0.005000 Stock Y 3.98% 0.004000 The covariance of returns on stocks X and Y is 0.003700. Consider a portfolio of 40% stock X and 60% stock Y. What is the variance of portfolio returns? Please round your answer to six decimal places. Note that the correct answer will be evaluated based on the full-precision result you would obtain using Excel.
Linear Combinations 2) Returns on stocks X and Y are listed below: Period 1 2 3...
Linear Combinations 2) Returns on stocks X and Y are listed below: Period 1 2 3 4 5 6 7 Stock X 4% 7% -2% 40% 0% 10% -1% Stock Y 2% -5% 7% 4% 6% 11% -4% Consider a portfolio of 10% stock X and 90% stock Y. What is the mean of portfolio returns? Please specify your answer in decimal terms and round your answer to the nearest thousandth (e.g., enter 12.3 percent as 0.123). 3) Returns on...
a) Michael has a portfolio comprising 2 assets: Stock X and Stock Y. Probability distribution of...
a) Michael has a portfolio comprising 2 assets: Stock X and Stock Y. Probability distribution of returns on Stock X and Stock Y are as follows Bear market Normal market Bull market Probability 0.2 0.5 0.3 Stock X -20% 18% 50% Stock Y -15% 20% 10% i)            What are the expected rates of return for Stocks X and Y? ii)           What are the standard deviations of returns on Stocks X and Y? ( b) You are a fund manager responsible for a...
Let X and Y be two independent random variables with μX =E(X)=2,σX =SD(X)=1,μY =2,σY =SD(Y)=3. Find...
Let X and Y be two independent random variables with μX =E(X)=2,σX =SD(X)=1,μY =2,σY =SD(Y)=3. Find the mean and variance of (i) 3X (ii) 6Y (iii) X − Y
Two stocks (A and B) have a covariance of 23. When combined in equal proportions into...
Two stocks (A and B) have a covariance of 23. When combined in equal proportions into portfolio Y, the variance of the portfolio is 30.25. Stock A has a variance twice that of Stock B. Another portfolio (X) has an expected return of 17% and a variance of 50. Additional Information The expected return on the market is 15% and the risk free rate is 7% Covariance (A,Market) = 22 and Covariance (B,Market) = 15.5 Variance of the Market is...
Stocks X and Y have the following probability distributions of expected future returns: Probability Stock X...
Stocks X and Y have the following probability distributions of expected future returns: Probability Stock X Stock Y 0.15 -5% -8% 0.35 7% 10% 0.30 15% 18% 0.20 10% 25% Expected return Standard deviation 6.42% Correlation between Stock X and Stock Y 0.8996 i. Calculate the expected return for each stock. ii. Calculate the standard deviation of returns for Stock Y. iii. You have $2,000. You decide to put $500 of your money in Stock X and the rest in...
Suppose you have interest only in two stocks, A and B. You expect that returns on...
Suppose you have interest only in two stocks, A and B. You expect that returns on the stocks depend on the following three states of the economy, which are equally likely to happen: State of economy: (Return on stock A) (Return on stock B)   Bear: (6%) -  (-4%) Normal: (10%) - (6%) Bull: (8%) - (25%) A) calculate the expected return for each stock: B) calculate the standard deviation of return of each stock: C) calculate the covariance between two stocks:...
Expected return on two stocks for two particular market returns: Market Return            Aggressive Stock        Defensive Stock...
Expected return on two stocks for two particular market returns: Market Return            Aggressive Stock        Defensive Stock 5%                               2%                               8% 20%                             25%                             20% What are the betas of the two stocks? What is the expected rate of return on each stock if the market return is equally likely to be 5% or 20%? If the T-bill rate is 4% and the market return is equally likely to be 5% or 20%, draw the SML for this economy. Between aggressive and defensive...
Suppose an investor can invest in two stocks, whose returns are random variables X and Y,...
Suppose an investor can invest in two stocks, whose returns are random variables X and Y, respectively. Both are assumed to have the same mean returns E(X) = E(Y) = μ; and they both have the same variance Var(X) = Var(Y) = σ2. The correlation between X and Y is some valueρ. The investor is considering two invesment portfolios: (1) Purchase 5 shares of the first stock (each with return X ) and 1 of the second (each with return...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT