Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Chapter 5, Problem 1CP
A portfolio of nondividend-paying stocks earned a geometric mean return of 5% between 1, January 1, 2010, and December 31, 2016. The arithmetic mean return for the same period was 6%. If the market value of the portfolio at the beginning of 2010 was $100, 000, what was the market value of the portfolio at the end of 2016? (LO 5-1)
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Stocks A and B have the following historical returns:
Stock A's Returns
(24.25%)
18.50
38.67
14.33
39.13
Year
2015
2016
2017
2018
2019
Assume the risk-free rate during this time was 3.5%. What are the Sharpe ratios for
Stocks A and B and the portfolio over this time period using their average returns?
Answers:
a) Sharpe ratio for Stock A
b) Sharpe ratio for Stock B
0.5332
0.8839
c) Sharpe ratio for Portfolio AB
Stock B's Returns
5.50%
26.73
48.25
(4.50)
43.86
Note: enter your answers with 4 decimal places
A portfolio of stocks generates a −9% return in 2016, a 23% return in 2017, and a 17% return in 2018. What is the annualized return (geometric mean) for the entire period?
Assume these are the stock market and Treasury bill returns for a 5-year period:
Stock Market
T-Bill
Year
Return (%)
Return (%)
2013
31.7
0.02
2014
10.9
0.02
2015
-1.6
0.02
2016
13.0
0.20
2017
21.3
0.80
Required:
a. What was the risk premium on common stock in each year? (Negative values should be entered with a negative
sign.)
b. What was the average risk premium?
c. What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.)
es
Complete this question by entering your answers in the tabs below.
Required A
Required B
Required C
What was the risk premium on common stock in each vear? (Do not round intermediate calculations. Enter vour answers as
e to search
Chapter 5 Solutions
Essentials Of Investments
Ch. 5 - Prob. 1PSCh. 5 - The real interest rate approximately equals the...Ch. 5 - When estimating a Sharpe ratio, would it make...Ch. 5 - You’ve just decided upon your capital allocation...Ch. 5 - Prob. 5PSCh. 5 - The stock of Business Adventures sells for $40 a...Ch. 5 - Prob. 7PSCh. 5 - a. Suppose you forecast that the standard...Ch. 5 - Using the historical risk premiums as your guide,...Ch. 5 - What has been the historical average real rate of...
Ch. 5 - Consider a risky portfolio. The end-of-year cash...Ch. 5 - For Problems 12-16, assume that you manage a risky...Ch. 5 - For Problems 12-16, assume that you manage a risky...Ch. 5 - For Problems 12-16, assume that you manage a risky...Ch. 5 - For Problems 12-16, assume that you manage a risky...Ch. 5 - For Problems 12-16, assume that you manage a risky...Ch. 5 - Prob. 17PSCh. 5 - You manage an equity fund with an expected risk...Ch. 5 - What is the reward-to--volatility (Sharpe) ratio...Ch. 5 - A portfolio of nondividend-paying stocks earned a...Ch. 5 - Which of the following statements about the...Ch. 5 - Which of the following statements reflects the...Ch. 5 - Use the following data in answering CFA Questions...Ch. 5 - Prob. 5CPCh. 5 - Lise the following data in answerifng CFA Question...Ch. 5 - Use the following scenario analysis for stocks X...Ch. 5 - Prob. 8CPCh. 5 - Use the following scenario analysis for stocks X...Ch. 5 - 10. Probabilities for three states of the economy...Ch. 5 - 11. An analyst estimates that a stock has the...Ch. 5 - Prob. 1WMCh. 5 - Prob. 2WMCh. 5 - Prob. 3WM
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- Stocks A and B have the following historical returns: Year Stock A’s Returns Stock B’s Returns 2015 (24.25%) 5.50% 2016 18.50 26.73 2017 38.67 48.25 2018 14.33 (4.50) 2019 39.13 43.86 Assume the risk-free rate during this time was 3.5%. What are the Sharpe ratios for Stocks A and B and the portfolio over this time period using their average returns? Answers: a) Sharpe ratio for Stock A = b) Sharpe ratio for Stock B = c) Sharpe ratio for Portfolio AB =arrow_forwardUsing the data in the table, consider a portfolio that maintains a 35% weight on stock A and a 65% weight on stock B. a. What is the return each year of this portfolio? (2010-2015) b. Based on your results from part (a), compute the average return and volatility of the portfolio. c. Show that (i) the average return of the portfolio is equal to the (weighted) average of the average returns of the two stocks, and (ii) the volatility of the portfolio equals the same result as from the calculation in Eq. 11.9. d. Explain why the portfolio has a lower volatility than the average volatility of the two stocks.arrow_forwardStocks C and F have the following historical returns: Year return (HPY) of C return (HPY) of F 2016 −18.00% −14.50% 2017 33.00% 21.80% 2018 15.00 % 30.50% 2019 −0.50% −7.60% 2020 27.00% 26.30% Required Calculate the geometric rate of return for each stock during the 5-year period. Calculate the standard deviation of returns for each stock. Calculate the coefficient of variation for each stock. If you are a risk-averse investor then, assuming these are your only choices, discuss whether you would prefer to hold Stock C or Stock F.arrow_forward
- Stocks A and B have the following historical returns: a. Calculate the average rate of return for each stock during the period 2013 through2017.b. Assume that someone held a portfolio consisting of 50% of Stock A and 50% ofStock B. What would the realized rate of return on the portfolio have been eachyear? What would the average return on the portfolio have been during thisperiod?c. Calculate the standard deviation of returns for each stock and for the portfolio.d. Calculate the coefficient of variation for each stock and for the portfolio.e. Assuming you are a risk-averse investor, would you prefer to hold Stock A, Stock B, orthe portfolio? Why?arrow_forwardAssume these are the stock market and Treasury bill returns for a 5-year period: ITT Stock Market T-Bill Return Year Return (%) (%) 2013 33.70 0.13 2014 13.30 0.13 2015 -3.60 0.13 2016 14.70 0.08 2017 24.20 0.10 Required: a. What was the risk premium on common stock in each year? b. What was the average risk premium? c. What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.) Complete this question by entering your answers in the tabs below. Required A Required B Required C What was the risk premium on common stock in each year? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Year Risk Premium 2013 % 2014 % 2015 % 2016 2017 %arrow_forwardAssume these are the stock market and Treasury bill returns for a 5-year period: Year Stock Market Return (%) T-Bill Return (%) 2013 36.00 0.22 2014 15.40 0.22 2015 −5.20 0.22 2016 17.00 0.09 2017 26.00 0.11 Required: a. What was the risk premium on common stock in each year? b. What was the average risk premium? c. What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.)arrow_forward
- Assume these are the stock market and Treasury bill returns for a 5-year period: Stock Market T-Bill Return Return (%) (%) 0.14 Year 2013 34.20 2014 13.90 0.14 2015 -3.80 0.14 2016 14.80 0.09 2017 24.30 0.11 Required: a. What was the risk premium on common stock in each year? b. What was the average risk premium? c. What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.) Complete this question by entering your answers in the tabs below. Required A Required B Required C What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.) (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Standard deviation %arrow_forwardAt the beginning of the slide, you were asked to derive the annualize rate of return for the U.S. stock market. In 2016 the value was 23.6 trillion and in 2018 it was 30.1 trillion. So what is the annualized RR? Select one: O a. 6.50% b. 27.54% O c. 30.10% O d. 13.77%arrow_forwardAssume these are the stock market and Treasury bill returns for a 5-year period: Stock Market T-Bill Return (%) 0.02 0.02 0.02 0. 20 Return (%) Year 2013 2014 2015 2016 2017 31.7 10.9 -1.6 13.0 21.3 0.80 Required: a. What was the risk premium on common stock in each year? (Negative values should be entered with a negative sign.) b. What was the average risk premium? c. What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.)arrow_forward
- Assume these are the stock market and Treasury bill returns for a 5-year period: Year Stock Market Return (%) T-Bill Return (%) 2016 13.0 0.2 2017 21.0 0.8 2018 -6.2 1.8 2019 29.8 2.1 2020 20.6 0.4 Required: What was the risk premium on common stock in each year? What was the average risk premium? What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.)-- expressed in % (NOTE: 11.31% is incorrect)arrow_forwardAssume these are the stock market and Treasury bill returns for a 5-year period: Year Stock Market Return (%) T-Bill Return (%) 2016 13.0 0.2 2017 21.0 0.8 2018 -6.2 1.8 2019 29.8 2.1 2020 20.6 0.4 Required: What was the risk premium on common stock in each year? What was the average risk premium? What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.)arrow_forwardAssume these are the stock market and Treasury bill returns for a 5-year period: Year 2016 2017 2018 2019 2020 Stock Market Return (%) 33.30 13.20 -3.50 14.50 23.80 Required: a. What was the risk premium on common stock in each year? b. What was the average risk premium? c. What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.) 3 Required A Required B T-Bill Return Complete this question by entering your answers in the tabs below. Standard deviation (%) 0.12 0.12 0.12 0.07 0.09 x Answer is complete but not entirely correct. Required C What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.) Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. 13.69 X % घarrow_forward
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