Question

A security had the following returns over the last four years. Compute the standard deviation of these historical returns.

Return (%) |

19 |

5 |

17 |

-5 |

Group of answer choices

11.10%

11.00%

10.90%

11.20%

10.80%

A security had the following returns over the last four years. Compute the geometric mean return.

Return (%) |

2 |

15 |

2 |

7 |

Group of answer choices

6.27%

5.97%

6.17%

6.37%

6.07%

You have been scouring The Wall Street Journal looking for stocks that are “good values” |

and have calculated expected returns for five stocks. Assume the risk-free rate (rRF) is 7 |

percent and the market risk premium (rM - rRF) is 2 percent. Which security would be the best |

investment? (Assume you must choose just one.) |

Group of answer choices

a. Expected Return = 9.01%, Beta = 2, Required Return = 11%, Expected Less Required Return = -1.99%

c. Expected Return = 5.04%, Beta = 0.5, Required Return = 8%, Expected Less Required Return = -2.96%

e. Expected Return = 11.50%, Beta = 1, Required Return = 9%, Expected Less Required Return = 2.50%

d. Expected Return = 8.74%, Beta = 0.3, Required Return = 7.6%, Expected Less Required Return = 1.14%

b. Expected Return = 7.06%, Beta = 0.3, Required Return = 7.6%, Expected Less Required Return = -0.54%

Answer #1

**ANSWER:**

= 9%

=**11.20%**

* ANSWER*:

=**6.37%**

* ANSWER*:

The security for which the expected return exceeds the required return by the largest amount, will be the best investment alternative.

As, Expected less Required Return is maximum(i.e 2.50%) for security e.

Therefore, E is the best option.

**e. Expected
Return = 11.50%, Beta = 1, Required Return = 9%, Expected Less
Required Return = 2.50%**

Given the following probability distribution, what are the
expected return and the standard
deviation of returns for Security J?
State Pi rj
1 0.2 12%
2 0.3 4%
3 0.5 17%
Group of answer choices
12.10%; 5.93%
12.30%; 5.63%
12.40%; 5.63%
12.30%; 5.93%
12.10%; 5.63%
Suppose you hold a diversified portfolio consisting of a $6,485
invested equally
in each of 20 different common stocks. The
portfolio’s beta is 0.81. Now
suppose you decided to sell one of your stocks that has a beta
of 1.4 and to
use the proceeds...

onsider the following information for stocks A, B, and C. The
returns on the three stocks are positively correlated, but they are
not perfectly correlated. (That is, each of the correlation
coefficients is between 0 and 1.) Stock Expected Return Standard
Deviation Beta A 8.74% 16% 0.9 B 9.98 16 1.2 C 12.06 16 1.7 Fund P
has one-third of its funds invested in each of the three stocks.
The risk-free rate is 5%, and the market is in equilibrium....

Consider the following information for three stocks, Stocks A,
B, and C. The returns on the three stocks are positively
correlated, but they are not perfectly correlated. (That is, each
of the correlation coefficients is between 0 and 1.)
Stock
Expected Return
Standard Deviation
Beta
A
9.10
%
14
%
0.8
B
10.45
14
1.1
C
12.70
14
1.6
Fund P has one-third of its funds invested in each of the three
stocks. The risk-free rate is 5.5%, and the...

Consider the following information for stocks A, B, and C. The
returns on the three stocks are positively correlated, but they are
not perfectly correlated. (That is, each of the correlation
coefficients is between 0 and 1.) Stock Expected Return Standard
Deviation Beta A 8.50% 14% 0.7 B 10.50 14 1.1 C 12.50 14 1.5 Fund P
has one-third of its funds invested in each of the three stocks.
The risk-free rate is 5%, and the market is in equilibrium....

Consider the following information for stocks A, B, and C. The
returns on the three stocks are positively correlated, but they are
not perfectly correlated. (That is, each of the correlation
coefficients is between 0 and 1.)
Stock Expected Return Standard Deviation
Beta A 9.64% 14% 0.9
B 10.56 14 1.1
C 13.32 14 1.7
Fund P has one-third of its funds invested in each of the three
stocks. The risk-free rate is 5.5%,...

Consider the following information for stocks A, B, and C. The
returns on the three stocks are positively correlated, but they are
not perfectly correlated. (That is, each of the correlation
coefficients is between 0 and 1.)
Stock
Expected Return
Standard Deviation
Beta
A
8.78%
14%
0.8
B
10.83
14
1.3
C
12.47
14
1.7
Fund P has one-third of its funds invested in each of the three
stocks. The risk-free rate is 5.5%, and the market is in
equilibrium....

Consider the following information for stocks A, B, and C. The
returns on the three stocks are positively correlated, but they are
not perfectly correlated. (That is, each of the correlation
coefficients is between 0 and 1.)
Stock
Expected Return
Standard Deviation
Beta
A
9.30%
14%
0.8
B
10.70
14
1.2
C
12.10
14
1.6
Fund P has one-third of its funds invested in each of the three
stocks. The risk-free rate is 6.5%, and the market is in
equilibrium....

Consider the following information for three stocks, Stocks A,
B, and C. The returns on the three stocks are positively
correlated, but they are not perfectly correlated. (That is, each
of the correlation coefficients is between 0 and 1.)
Stock
Expected Return
Standard Deviation
Beta
A
8.08
%
16
%
0.7
B
10.28
16
1.2
C
11.60
16
1.5
Fund P has one-third of its funds invested in each of the three
stocks. The risk-free rate is 5%, and the...

eBook Problem Walk-Through
Consider the following information for stocks A, B, and C. The
returns on the three stocks are positively correlated, but they are
not perfectly correlated. (That is, each of the correlation
coefficients is between 0 and 1.)
Stock
Expected Return
Standard Deviation
Beta
A
9.45%
14%
0.9
B
11.65
14
1.3
C
13.85
14
1.7
Fund P has one-third of its funds invested in each of the three
stocks. The risk-free rate is 4.5%, and the market...

Consider the following information for three stocks, Stocks A,
B, and C. The returns on the three stocks are positively
correlated, but they are not perfectly correlated. (That is, each
of the correlation coefficients is between 0 and 1.)
Stock
Expected Return
Standard Deviation
Beta
A
8.92
%
16
%
0.8
B
10.39
16
1.1
C
12.84
16
1.6
Fund P has one-third of its funds invested in each of the three
stocks. The risk-free rate is 5%, and the...

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