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16. If you hold a portfolio made up of the following stocks:

Investment Value Beta

Stock A $2000 1.5

Stock B $5000 1.2

Stock C $.8

What is the beta of the portfolio?

d) can't be determined from information given

17. Your broker mailed you your year end statement. You have $25,000 invested in Dow Chemical, $18,000 tied up in GM, $36,000 in Microsoft stock, and $11,000 in Nike. The annualized return for these stocks is 16.5% for Dow, 12.0% for GM, 18.5% for Microsoft, and 15.3% for Nike. What is the return of your entire portfolio?

b) 16.25%

|25000 |0.277778 |16.5 |4.58 |

|18000 |0.2 |12 |2.40 |

|36000 |0.4 |18.5 |7.40 |

|11000 |0.122222 |15.3 |1.87 |

|90000 |1 |  |16.25 |

18. You are considering investing in a firm that has the following possible outcome:

Economic boom: probability of 25%; return of 25%

Economic growth: probability of 60%; return of 15%

Economic decline: probability of 15%; return of -5%

What is the expected rate of return on the investment?

b) 14.5%

|0.25 |25 |6.25 |

|0.6 |15 |9.00 |

|0.15 |-5 |-0.75 |

|1 |  |  |

|  |  |14.50 |

19. Wilson Inc is expecting the following return on their stock and related probabilities. Calculate Wilson's expected return.

State Probability Return

Boom 30% 30%

Normal 70% 10%

b) 16%

.3*30+.7*10

20. If there is a 20% chance we will get a 16% return, a 30% chance of getting a 14% return, a 40% chance of getting a 12% return, and a 10% chance of getting an 8% return. What is the expected rate of return?

a) 13%

|0.2 |16 |3.20 |

|0.3 |14 |4.20 |

|0.4 |12 |4.80 |

|0.1 |8 |0.80 |

|1 |  |13.00 |

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