BUSN 379 Week 2 Homework Chapter 11;
4, 7, 17, and 29
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4. Portfolio
Expected Return. You have $10,000 to invest in a stock portfolio. Your
choices are Stock X with an expected return of 14 percent and Stock Y with an
expected return of 11 percent. If your goal is to create a portfolio with an
expected return of 12.4 percent, how much money will you invest in Stock X? In
Stock Y?
7. Calculating Returns and Standard
Deviations.
Based on the following information, calculate the expected return and standard
deviation for the two stocks.
17. Using CAPM. A stock has a beta of 1.15 and an
expected return of 10.4 percent. A risk-free asset currently earns 3.8 percent.
a. What is the
expected return on a portfolio that is equally invested in the two assets?
b. If a
portfolio of the two assets has a beta of .7, what are the portfolio weights?
c. If a
portfolio of the two assets has an expected return of 9 percent, what is its
beta?
d. If a
portfolio of the two assets has a beta of 2.3, what are the portfolio weights?
How do you interpret the weights for the two assets in this case? Explain.
29. SML - Suppose you observe the following
situation:
a. Calculate the expected return
on each stock.
b. Assuming the capital asset
pricing model holds and stock A’s beta is greater than stock B’s beta by .25,
what is the expected market risk premium?
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