chapter-12-homework

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1.

value:
1.00 points

A stock has an expected return of 14.8 percent, its beta is 1.40, and the risk-free rate is 3.1 percent. What must the expected return on the market be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the “%” sign in your response.)

Expected return

%

1.

Award: 0 out of 1.00 point

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A stock has an expected return of 14.8 percent, its beta is 1.40, and the risk-free rate is 3.1 percent. What must the expected return on the market be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the “%” sign in your response.)

Expected return

%

Explanation:

E(Ri) = .148 = .031 + (E(Rmkt) – .031)(1.40); E(Rmkt) = 11.46%

2.

value:
1.00 points

You own 400 shares of Stock A at a price of $55 per share, 330 shares of Stock B at $80 per share, and 600 shares of Stock C at $28 per share. The betas for the stocks are .7, 1.3, and .5, respectively. What is the beta of your portfolio? (Do not round intermediate calculations. Round your answer to 2 decimalplaces.)

Beta

3.

value:
1.00 points

Stock Y has a beta of 1.30 and an expected return of 15.10 percent. Stock Z has a beta of .70 and an expected return of 8 percent. If the risk-free rate is 4.0 percent and the market risk premium is 8.4 percent, what are the reward-to-risk ratios of Y and Z? (Do not round intermediate calculations. Round your answers to 4 decimal places.)

Y

Z


4.

value:
1.00 points

Fill in the following table, supplying all the missing information. Use this information to calculate the security’s beta. (Negative values should be indicated by a minus sign. Leave no cells blank – be certain to enter “0” wherever required. Do not round intermediate calculations. Enter your Return Deviations answers as a whole number percentage. Round Squared Deviations, Product of Deviations answers to 5 decimal places and Security’s beta answer to 2 decimal places. Omit the “%” sign in your response.)

Returns

Return Deviations

Squared Deviations

Product of
Deviations



Year

Security

Market

Security

Market

Security

Market

2009

8

%

5

%

%

%

2010

-18

%

-14

%

%

%

2011

21

%

15

%

%

%

2012

38

%

21

%

%

%

2013

16

%

7

%

%

%














Totals

Show correct answer

Consider the following information on Stocks I and II:

Rate of Return If State Occurs

Probability of



State of Economy

State of Economy

Stock I

Stock II

Recession

.20

.03

-.22

Normal

.30

.38

.14

Irrational exuberance

.50

.32

.48


The market risk premium is 9 percent, and the risk-free rate is 4.5 percent.

1-a.

What is the beta of each stock? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Beta

Stock I

1.00

Stock II

3.00


1-b.

Which stock has the most systematic risk?

n/r

2-a.

What is the standard deviation of each stock? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the “%” sign in your response.)

Standard Deviation

Stock I

n/r %

Stock II

1.00 %


2-b.

Which one has the most unsystematic risk?

n/r

3.

Which stock is “riskier”?

n/r

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