Chapter 13

1. Consider the following information:

State of Economy Probability of

State of Economy Portfolio Return

if State Occurs

Recession 0.23 − 0.17

Normal 0.48 0.13

Boom 0.29 0.39

Calculate the expected return. (Round your answer to 2 decimal places. (e.g., 32.16))

2. A stock has an expected return of 12.2 percent, the risk-free rate is 4 percent, and the market risk premium is 10 percent. What must the beta of this stock be? (Round your answer to 2 decimal places. (e.g., 32.16))

3. Consider the following information:

Rate of Return if State Occurs

State of Probability of

Economy State of Economy Stock A Stock B Stock C

Boom 0.66 0.12 0.21 0.39

Bust 0.34 0.20 0.08 − 0.08

a. What is the expected return on an equally weighted portfolio of these three stocks? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

b. What is the variance of a portfolio invested 22 percent each in A and B and 56 percent in C? (Do not round intermediate calculations and round your answer to 6 decimal places. (e.g., 32.161616))

4. A stock has a beta of 1.22, the expected return on the market is 12 percent, and the risk-free rate is 4.0 percent. What must the expected return on this stock be? (Round your answer to 2 decimal places. (e.g., 32.16))

5. You own a portfolio that has $3,900 invested in Stock A and $4,900 invested in Stock B. If the expected returns on these stocks are 11 percent and 14 percent, respectively, what is the expected return on the portfolio? (Round your answer to 2 decimal places. (e.g., 32.16))

9. A portfolio is invested 18 percent in Stock G, 58 percent in Stock J, and 24 percent in Stock K. The expected returns on these stocks are 10 percent, 16 percent, and 22 percent, respectively. What is the portfolio's expected return? (Round your answer to 2 decimal places. (e.g., 32.16))

Subject | Business |

Due By (Pacific Time) | 07/30/2015 11:00 pm |

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