Question
Assume you are a portfolio manager at JS Global Capital Ltd. Recently you came across three...
Assume you are a portfolio manager at JS Global
Capital Ltd. Recently you came across three attractive stocks and
want to create a portfolio investment in these three stocks. The
details of the stocks are given below:
Company name Volatility
(Standard deviation) Weight in Portfolio Correlation with the
market portfolio
Meezan Bank Ltd 12% 0.25 0.40
Lucky Cement Ltd 25% 0.35 0.60
KE Ltd 13% 0.40 0.50
The expected return on the market portfolio is 8% and its
volatility is 10%. The risk-free rate based on central bank’s
discount rate is 3%. (1.5 marks each)
a. Calculate each of the stock’s expected return and risk (beta) as
compared to the market.
b. What should be the expected return of the portfolio based on
values calculated in part a.
c. Calculate the beta of the portfolio? what does it tells
regarding the riskiness of the portfolio?
d. Using the values from part c, can you calculate the expected
return of the portfolio? Is it similar to your answer in part b?
Why or why not?
Homework Answers
Answer #1
Not the answer you're looking for?
Similar Questions
Consider a portfolio consisting of the following three stocks: Portfolio Weight Volatility Correlation with the Market...
Consider a portfolio consisting of the following three
stocks:
Portfolio Weight
Volatility
Correlation with the Market Portfolio
HEC corporation
0.27
13%
0.37
Green Midget
0.39
29%
0.64
AliveAndWell
0.34
12%
0.53
The volatility of the market portfolio is 10% and it has an
expected return of 8%. The risk-free rate is 3%
a. Compute the beta and expected return of each stock.
(Round to two decimal places.)
b. Using your answer from part a, calculate the expected
return of the...
You have just invested in a portfolio of three stocks. The amount of money that you...
You have just invested in a portfolio of three stocks. The
amount of money that you invested in each stock and its beta are
summarized below.
Stock
Investment
Beta
A
$188,000
1.51
B
282,000
0.52
C
470,000
1.35
Calculate the beta of the portfolio and use the capital asset
pricing model (CAPM) to compute the expected rate of return for the
portfolio. Assume that the expected rate of return on the market is
18 percent and that the risk-free rate...
You have just invested in a portfolio of three stocks. The amount of money that you...
You have just invested in a portfolio of three stocks. The
amount of money that you invested in each stock and its beta are
summarized below. Stock Investment Beta A $210,000 1.47 B 315,000
0.61 C 525,000 1.16 Calculate the beta of the portfolio and use the
Capital Asset Pricing Model (CAPM) to compute the expected rate of
return for the portfolio. Assume that the expected rate of return
on the market is 16 percent and that the risk-free rate...
1) Suppose you have $100,000 to invest in a PORTFOLIO OF TWO stocks: Stock A and...
1) Suppose you have $100,000 to invest in a PORTFOLIO OF TWO
stocks: Stock A and Stock B. Your analysis of the two stocks led to
the following risk -return statistics:
Expected Annual Return
Beta
Standard Deviation
A
18%
1.4
25%
B
12%
0.6
16%
The expected return on the market portfolio is 7% and the risk
free rate is 1%. You want to create a portfolio with NO MARKET
RISK.
a) How much (IN DOLLARS) should you invest IN...
Assume for parts (a) to (c) that the Capital Asset Pricing Model holds. The market portfolio...
Assume for parts (a) to (c) that the Capital Asset Pricing Model
holds. The market portfolio has an expected return of 5%. Stock A's
return has a market beta of 1.5, an expected value of 7% and a
standard deviation of 10%. Stock B's return has a market beta of
0.5 and a standard deviation of 20%. The correlation between stock
A's and stock B's returns is 0.5.
1.what the risk-free rate? What is the expected return on stock
B?...
IV. You currently hold a diversified portfolio with a beta of 1.1. The value of your...
IV. You currently hold a diversified portfolio with a beta of
1.1. The value of your investment is $500,000. The risk-free rate
is 3%, the expected return on the market is 8%.
a) Using the CAPM, calculate the expected return on your
portfolio.
b) Suppose you sell $10,000 worth of Chevron stock (which is
currently part of the portfolio) with a beta of 0.8 and replace it
with $10,000 worth of JP Morgan stock with a beta of 1.6. What...
You are provided some data about the market: The expected return of the market portfolio is...
You are provided some data about the market: The expected return
of the market portfolio is 10.8%, the market's volatility is 13.4%,
and the risk-free rate is 1.9%.
If the beta of LEVI is 1.56, according to the CAPM, LEVI should
have some expected return. However, you think that LEVI has an
expected return of 13.4%.
What do you think is the alpha of LEVI?
Over the last year, the market realized a return of 16.8%, while
the risk-free rate...
Suppose that a portfolio is made up of the following three stocks: Stock Ace Bees Seas...
Suppose that a portfolio is made up of the following three
stocks:
Stock
Ace Bees Seas
Investment Beta
$ 3,000 0.75 $ 4,500 1.5 $ 7,500 1.4
The expected rate of return on the market is 13% and the
risk-free rate is 7%.
a) Compute the beta of the portfolio.
b) Compute the required rate of return on the portfolio.
c) If the expected return on the portfolio is 18%, would you
invest in it? Why or why not?
STOCK PERCENTAGE OF PORTFOLIO BETA EXPECTED RETURN 1 20% 0.95 16% 2 10% 0.90 13% 3...
STOCK PERCENTAGE OF PORTFOLIO
BETA EXPECTED RETURN
1 20% 0.95 16%
2 10% 0.90 13%
3 25% 1.15 20%
4 5% 0.70 12%
5 40% 1.55 25%
(Portfolio beta and security market line) You own a portfolio
consisting of the following stocks:. The risk-free rate is 4
percent.Also, the expected return on the market portfolio is 10
percent.
a. Calculate the expected return of your portfolio. (Hint: The
expected return of a portfolio equals the weighted average of the
individual...
A.) A mutual fund manager has a $20 million portfolio with a beta of 1.50. The...
A.)
A mutual fund manager has a $20 million portfolio with a beta of
1.50. The risk-free rate is 4.00%, and the market risk premium is
7.0%. The manager expects to receive an additional $5 million,
which she plans to invest in a number of stocks. After investing
the additional funds, she wants the fund's required return to be
17%. What should be the average beta of the new stocks added to the
portfolio? Do not round intermediate calculations. Round...
ADVERTISEMENT
Need Online Homework Help?
Get Answers For Free
Most questions answered within 1 hours.
ADVERTISEMENT
Active Questions
asked 16 minutes ago
asked 28 minutes ago
asked 35 minutes ago
asked 49 minutes ago
asked 53 minutes ago
asked 57 minutes ago
asked 1 hour ago
asked 1 hour ago
asked 1 hour ago
asked 1 hour ago
asked 1 hour ago
asked 1 hour ago