Business Finance Excel Risk and Return
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_WK5HW.xlsxQuestion 4
| Portfolio Expected Return. You have $10,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 14 percent and Stock Y with an expected return of 11 percent. If your goal is to create a portfolio with an expected return of 12.4 percent, how much money will you invest in Stock X? In Stock Y? |
Question 7
| Calculating Returns and Standard Deviations. Based on the following information, calculate the expected return and standard deviation for the two stocks. |
Question 17
| Using CAPM. A stock has a beta of 1.15 and an expected return of 10.4 percent. A risk-free asset currently earns 3.8 percent. | |
| a. What is the expected return on a portfolio that is equally invested in the two assets? | |
| b. If a portfolio of the two assets has a beta of .7, what are the portfolio weights? | |
| c. If a portfolio of the two assets has an expected return of 9 percent, what is its beta? | |
| d. If a portfolio of the two assets has a beta of 2.3, what are the portfolio weights? How do you interpret the weights for the two assets in this case? Explain. | |
Question 29
| SML | Suppose you observe the following situation: |
| a. | Calculate the expected return on each stock. |
| b. | Assuming the capital asset pricing model holds and stock A’s beta is greater than stock B’s beta by .25, what is the expected market risk premium? |
