Question

Answer the following questions. Assume a two-stock portfolio XY is created with $6000 invested in security X and $9000 in security Y. The expected return and the variance for Portfolio XY is 23.32% and 0.45%, respectively. What is the coefficient of variation for Portfolio XY?

Select one:

a. 0.67

b. 0.24

c. 0.43

d. 0.47

e. 0.29

Question 2

Continued from previous question. Assume the yield curve is flat and the T-bill rate is 5%. The market risk premium is 10%. Portfolio XY has a market beta of 2.5. What is the required rate of return for Portfolio XY?

Select one:

a. 30.0%.

b. 20.0%.

c. 17.5%.

d. 13.5%.

e. 12.5%.

Question 3

Continued from previous questions. Compare the required rate of return with the predicted rate of return (expected rate of return) of Portfolio XY, which of the following statements is most correct?

Select one:

a. The portfolio is not paying dividends.

b. The portfolio is experiencing supernormal growth.

c. The portfolio is a good buy.

d. The portfolio should be sold.

e. The portfolio has a larger expected return than most of the stocks.

Answer #1

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1. Answer the following questions. Assume a two-stock portfolio
XY is created with $6000 invested in security X and $9000 in
security Y. The expected return and the variance for Portfolio XY
is 23.32% and 0.45%, respectively. What is the coefficient of
variation for Portfolio XY?
Select one:
a. 0.67
b. 0.43
c. 0.24
d. 0.47
e. 0.29
2. Continued from previous question. Assume the yield curve is
flat and the T-bill rate is 5%. The market risk premium is...

An investor is forming a portfolio by investing $50,000 in stock
A that has a beta of 1.50, and $25,000 in stock B that has a beta
of 0.90. The market risk premium is equal to 6% and Treasury bonds
have a yield of 4%. What is the required rate of return on the
investor's portfolio?
a. 11.8%
b. 7.5%
c. 6.6%
d. 6.8%
e. 7.0%
Continued from previous question. Assume the predicted rate of
return (expected rate of return)...

Suppose you own a portfolio with two securities. Security A has
an expected return of 13.4% and a standard deviation of 55% per
year. Security B has an expected return of 9.3% and a standard
deviation of 32% per year. Considering that your portfolio is
composed of 35% of Security A and 65% of Security B, and that the
correlation between their returns is .25, what is the standard
deviation of your portfolio?
Select one:
a. 31.68%
b. 40.05%
c....

You have the following information on two securities in which
you have invested money:
Security Expected Return
Xerox 15% Kodak 12%
Standard deviation
4.5% 3.8%
Beta %Invested
1.20 35% 0.98 65%
The rate of return on the market portfolio is 17% and the
risk-free rate of return is 7.5%.
a) Compute the expected return on the portfolio.
b) Compute the beta of the portfolio.
c) Compute the required rate of return on the portfolio using
the CAPM.
d) Is the...

question 3
Your portfolio consists of two stocks. You have $2000 in stock A
and $8000 in stock B. The returns for stock A have a standard
deviation of 20% and the returns for stock B have a standard
deviation of 10%. The correlation coefficient between A and B is
0.6. What is your portfolio standard deviation?
Select one:
a. 9.8%
b. 11.2%
c. 6.8%
d. 10.2%
e. 10.9%
question 4
If investors require a 5.5% nominal return and the...

Answer the following questions.
A company is analyzing two mutually exclusive
projects, S and L, whose cash flows are shown below:
Year 0
Year 1
Year 2
Year 3
Year 4
Cashflow for S
-200
150
100
10
10
Cashflow for L
-200
10
10
100
250
Assume the company can get an unlimited amount of capital at
that cost.
WACC
NPV (S)
NPV (L)
5%
10%
15%
20%
25%
What is the internal rate of return (IRR) for...

1.Use the following information to answer the question(s)
below.
Suppose that the market portfolio is equally likely to increase
by 24% or decrease by 8%. Security "X" goes up on average by 29%
when the market goes up and goes down by 11% when the market goes
down. Security "Y" goes down on average by 16% when the market goes
up and goes up by 16% when the market goes down. Security "Z" goes
up on average by 4% when...

Use the following information to answer the two questions
below.
State
of
Prob. of
the
Rate of return if state occurs
the
economy state
of
economy
Stock
A Stock B
Boom
0.40
0.12
0.04
Bust
0.60
0.02
0.04
You MUST use 4 digits in every calculation you do in
order for your answer to be the same as the one in the system.
Enter answer using 4 decimals. Do not use or enter...

HW #6
1. Use the following information to answer the
questions.
State
Probability
Stock A return
Stock B return
Good
Normal
Bad
0.3
0.6
0.1
8%
2%
-3%
5%
1%
-1%
(a). Given that you form a portfolio by investing $4,000 in
Stock A and $1,000 in Stock B, what is the expected return on your
portfolio?
(b).What is the variance and standard deviation of your
portfolio?
(c). Suppose that Stock A has a beta of 1.5 and Stock B...

Use the following information to answer questions 4- 8:
Diana wants to evaluate the stock of Eagle Inc, which is
currently trading at $14.50 per share. She gathers the following
information:
· Current book value per share = $9.50
· ROE = 18%
· Expected EPS for Year 1-3 = ROE times beginning book value per
share
· Dividend payout ratio = 40%
· Required rate of return on equity = 10%
Question: The company's residual income per share at...

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