1- You buy 110 shares of Tidepool Co. for $36 each and 210 shares of Madfish, Inc., for $20 each. What are the weights in your portfolio? The weight of Tidepool Co. stock in the portfolio is ——-%. (Round to one decimal place.)
2- Fremont Enterprises has an expected return of 18% and Laurelhurst News has an expected return of 23%. If you put 52% of your portfolio in Laurelhurst and 48% in Fremont, what is the expected return of your portfolio? The expected return on the portfolio is ——-%. (Rounded to two decimal places.)
3-You are considering how to invest part of your retirement savings.You have decided to put $100,000 into three stocks: 58% of the money in GoldFinger (currently $19/share), 22% of the money in Moosehead (currently $76/share), and the remainder in Venture Associates (currently $10/share).
Suppose GoldFinger stock goes up to $42/share, Moosehead stock drops to $58/share, and Venture Associates stock rises
to $14 per share.
a. What is the new value of the portfolio? (Round to nearest cent)
b. What return did the portfolio earn? (Round to 4 decimial places)
c. If you don’t buy or sell any shares after the price change, what are your new portfolio weights? (Round to 4 decimial places)
4-There are two ways to calculate the expected return of a portfolio: Either calculate the expected return using the value and dividend stream of the portfolio as a whole, or calculate the weighted average of the expected returns of the individual stocks that make up the portfolio. Which return is higher?
A.The weighted average expected return of the individual stocks is higher because returns are conve
B.The weighted average expected return of the individual stocks is higher because returns are concave.
C.Neither—both calculations give the same answer.
D.Impossible to tell, it depends on the portfolio.
5- Stocks A and B have the following returns:
Stock A
Stock B
1
0.08
0.05
2
0.05
0.02
3
0.14
0.04
4
−0.04
0.01
5
0.09
−0.03
a. What are the expected returns of the two stocks? (Round to four decimal places.)
b. What are the standard deviations of the returns of the two stocks? (Round to four decimal places.)
c. If their correlation is 0.47, what is the expected return and standard deviation of a portfolio of 76% stock A and 24% stock B? (Round to four decimal places.)
6.Given $100,000 to invest, construct a value-weighted portfolio of the four stocks listed below.
Stock
Price/Share
($)
Number of Shares Outstanding (millions)
Golden Seas
14
1.1
Jacobs and Jacobs
22
1.56
MAG
47
26.51
PDJB
14
10.17
Enter the portfolio weight below: (Round to two decimal places.)
Stock
% of Total Value
(portfolio weight)
Golden Seas
Jacobs and Jacobs
MAG
PDJB
%
%
%
%
7-You hear on the news that the S&P 500 was down 1.5% today relative to the risk-free rate (the market’s excess return was
−1.5%). You are thinking about your portfolio and your investments in Hewlett Packard and Proctor and Gamble.
a. If Hewlett Packard’s beta is 1.4, what is your best guess as to Hewlett Packard’s excess return today? (Round to four decimal place.)
b. If Proctor and Gamble’s beta is 0.5, what is your best guess as to P&G’s excess return today?(Round to four decimal place.)
8- Suppose the risk-free return is 6.1% and the market portfolio has an expected return of 8.8% and a standard deviation of
16%. Johnson & Johnson Corporation stock has a beta of 0.76. What is its expected return?
The expected return is ——-%. (Round to two decimal places.)
9- Suppose Intel stock has a beta of 0.85, whereas Boeing stock has a beta of 1.18. If the risk-free interest rate is
3.8% and the expected return of the market portfolio is 13.6%, according to the CAPM,
a. What is the expected return of Intel stock?
Intel’s expected return is ———%. (Round to one decimal place.)
b. What is the expected return of Boeing stock? (Round to four decimal place.)
c. What is the beta of a portfolio that consists of 70% Intel stock and 30% Boeing stock? (Round to four decimal place.)
d. What is the expected return of a portfolio that consists of 70% Intel stock and 30% Boeing stock? (There are two ways to solve this.) (Round to four decimal place.)
10 – At the beginning of 2007 (the year the iPhone was introduced), Apple’s beta was 1.2 and the risk-free rate was about
4.4%. Apple’s price was $81.36. Apple’s price at the end of 2007 was $198.72. If you estimate the market risk premium to have been 5.9%, did Apple’s managers exceed their investors’ required return as given by the CAPM?
The expected return is ——–%. (Round to two decimal places.)
