State of Economy Probability of State of Economy Rate of Return if State Occurs Stock A Stock B Recession 0.20 0.05 -0.17 Normal 0.55 0.08 0.12 Boom 0.25 0.13 0.29 a) The expected return of Stock A b) The expected return of Stock B c) The expected return of Portfolio where you invest $35,000 in Stock A and $45,000 in Stock B d) Suppose Stock A has a beta of 0.8 and Stock B has a beta of 1.3. If you invest $35,000 in Stock A and $45,000 in Stock B, what is the beta of this portfolio? e) Expected return on the market (RM ) is 10% and the risk-free (rf) is 4%. What must the the expected return on the portfolio according to CAPM? (Use the beta you have calculated in section d) for CAPM)
State of Economy Probability of State of Economy Rate of Return if State Occurs Stock A Stock B Recession 0.20 0.05 -0.17 Normal 0.55 0.08 0.12 Boom 0.25 0.13 0.29 a) The expected return of Stock A b) The expected return of Stock B c) The expected return of Portfolio where you invest $35,000 in Stock A and $45,000 in Stock B d) Suppose Stock A has a beta of 0.8 and Stock B has a beta of 1.3. If you invest $35,000 in Stock A and $45,000 in Stock B, what is the beta of this portfolio? e) Expected return on the market (RM ) is 10% and the risk-free (rf) is 4%. What must the the expected return on the portfolio according to CAPM? (Use the beta you have calculated in section d) for CAPM)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
|
State of Economy |
Probability of State of Economy |
|
|
|
Stock A |
Stock B |
||
|
Recession |
0.20 |
0.05 |
-0.17 |
|
Normal |
0.55 |
0.08 |
0.12 |
|
Boom |
0.25 |
0.13 |
0.29 |
- a) The expected return of Stock A
- b) The expected return of Stock B
- c) The expected return of Portfolio where you invest $35,000 in Stock A and $45,000 in Stock B
- d) Suppose Stock A has a beta of 0.8 and Stock B has a beta of 1.3. If you invest $35,000 in Stock A and $45,000 in Stock B, what is the beta of this portfolio?
- e) Expected return on the market (RM ) is 10% and the risk-free (rf) is 4%. What must the the expected return on the portfolio according to
CAPM ? (Use the beta you have calculated in section d) for CAPM)
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