Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Chapter 18, Problem 8PS
Based on current dividend yields and expected
a. If you currently hold a market-index portfolio, would you choose to add either of these portfolios to your holdings? Explain.
b. If instead you e0u1d invest only in T-bills and one of these portfolios, which would you choose?
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Based on current dividend yields and expected capital gains, the expected rates of return on portfolios A and B are 12% and 16%, respectively. The beta of A is .7, while that of B is 1.4. The T-bill rate is currently 5%, whereas the expected rate of return of the S&P 500 index is 13%. The standard deviation of portfolio A is 12% annually, that of B is 31%, and that of the S&P 500 index is 18%.a. If you currently hold a market-index portfolio, would you choose to add either of these portfolios to your holdings? Explain.b. If instead you could invest only in T-bills and one of these portfolios, which would you choose?
Based on current dividend yields and expected capital gains, the expected rates or return on portfolios A and B are 12% and 18%, respectively. The beta of A is 0.7 while that of B is 1.6. The T-bill rate is currently 4% while the expected rate of return of the S&P500 Index is 13%. The standard deviation of portfolio A is 14% annually, while that of B is 26%, and that of the index is 15%.
If you currently hold a market-index portfolio, would you chose to add either of these portfolios to your holdings?
Based on current dividend yields and expected capital gains, the expected rates of return on portfolios A
and B are 11% and 14%, respectively. The beta of A is .8, while that of B is 1.5. The T-bill rate is currently
6%, while the expected rate of return of the S&P 500 index is 12%. The standard deviation of portfolio A is
10% annually, while that of B is 31%, and that of the index is 20%.
a. If you currently hold a market index portfolio, what would be the alpha for Portfolios A and B?
Chapter 18 Solutions
Essentials Of Investments
Ch. 18.1 - Prob. 1EQCh. 18.1 - Which fund would you choose if you were...Ch. 18.6 - Prob. 1EQCh. 18.6 - What would happen to the contribution of security...Ch. 18 - Prob. 1PSCh. 18 - Is it possible for a positive alpha to be...Ch. 18 - Prob. 3PSCh. 18 - Prob. 5PSCh. 18 - 6. stock price and dividend history are as...Ch. 18 - Prob. 7PS
Ch. 18 - Based on current dividend yields and expected...Ch. 18 - Consider the two (excess return) index~m0del...Ch. 18 - Prob. 10PSCh. 18 - Prob. 11PSCh. 18 - Prob. 12PSCh. 18 - Conventional wisdom says that one should measure a...Ch. 18 - Prob. 14PSCh. 18 - Prob. 15PSCh. 18 - Bill Smith is evaluating the performance of four...Ch. 18 - Prob. 17PSCh. 18 - Prob. 18PSCh. 18 - Prob. 19PSCh. 18 - Prob. 20PSCh. 18 - Prob. 21PSCh. 18 - Prob. 22PSCh. 18 - Prob. 1CPCh. 18 - Prob. 2CPCh. 18 - Prob. 3CPCh. 18 - Prob. 4CPCh. 18 - What is the Sharpe performance measure for...Ch. 18 - Prob. 6CPCh. 18 - Prob. 7CPCh. 18 - Prob. 8CPCh. 18 - Prob. 9CPCh. 18 - Prob. 10CPCh. 18 - Prob. 11CPCh. 18 - Prob. 12CPCh. 18 - Prob. 13CPCh. 18 - Prob. 14CPCh. 18 - Prob. 1WMCh. 18 - Prob. 2WMCh. 18 - Prob. 3WMCh. 18 - Prob. 4WMCh. 18 - Prob. 5WMCh. 18 - Prob. 7WM
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- Consider two types of assets: market portfolio (M) and stock A. The expected return is 8% and standard deviation of the market portfolio is 15%. The risk-free rate is 2%. The standard deviation of market portfolio returns is 15%. The standard deviation of stock A is 30%, and the beta coefficient is 1. Draw the capital market line and show the position of stock A.arrow_forwardConsider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 21% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 2%. Calculate the utility levels of each portfolio for an investor with A=2. Assume the utility function is U = E(r) Note: Do not round intermediate calculations. Round your answers to 4 decimal places. Negative amounts should be indicated by - 0.5 × Ag². a minus sign. WBills 0.0 0.2 0.4 0.6 0.8 1.0 WIndex 1.0 0.8 0.6 0.4 0.2 0.0 U(A = 2)arrow_forwardConsider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 31% per year. Assume these values are representative of Investors' expectations for future performance and that the current T-bill rate is 3%. Calculate the utility levels of each portfolio for an Investor with A = 2. Assume the utility function is u = E(r) - 8.5 x Ao². Note: Do not round Intermediate calculations. Round your answers to 4 decimal places. Negative amounts should be Indicated by a minus sign. W Bills 0.0 0.2 0.4 0.6 0.8 1.0 Windex 1.0 0.8 0.6 0.4 Oo 0.2 0.0 U(A = 2)arrow_forward
- Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 28% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 6%. Calculate the utility levels of each portfolio for an investor with A-2. Assume the utility function is U = E(r) - 0.5 x Ao². (Do not round intermediate calculations. Round your answers to 4 decimal places. Negative amounts should be indicated by a minus sign.) WBills 0.0 0.2 0.4 0.6 0.8 1.0 Windex 1.0 0.8 0.6 0.4 0.2 0.0 U(A=2)arrow_forwardConsider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 21% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 4%. Calculate the utility levels of each portfolio for an investor with A = 3. Assume the utility function is u = E(r) - 0.5 × Ao². (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 4 decimal places.) WBills 0.0 0.2 0.4 0.6 0.8 1.0 Windex 1.0 0.8 0.6 0.4 0.2 0.0 U(A = 3)arrow_forwardConsider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 33% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 4%. Calculate the utility levels of each portfolio for an investor with A = 2. Assume the utility function is U = E(r) Note: Do not round intermediate calculations. Round your answers to 4 decimal places. Negative amounts should be indicated by a minus sign. - 0.5 × Ag². X Answer is complete but not entirely correct. WIndex U(A = 2) 0.0111 0.0504 0.0808 x 0.1026 0.1164 X 0.1200 X WBills 0.0 0.2 0.4 0.6 0.8 1.0 1.0 0.8 0.6 0.4 0.2 0.0arrow_forward
- Security F has an expected return of 10 percent and a standard deviation of 43 percent per year. Security G has an expected return of 15 percent and a standard deviation of 62 percent per year. Required: (a) What is the expected return on a portfolio composed of 30 percent of Security F and 70 percent of Security G? (b) If the correlation between the returns of Security F and Security G is .25, what is the standard deviation of the portfolio described in part (a)?arrow_forwardConsider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 90 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 20% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 5%. Calculate the utility levels of each portfolio for an investor with A = 3. Assume the utility function is u = round intermediate calculations. Round your answers to 4 decimal places.) E(r) WBills 0.0 0.2 0.4 0.6 0.8 1.0 Windex 1.0 0.8 0.6 0.4 0.2 0.0 U(A = 3) 0.5 × Ao². (Do notarrow_forwardSecurity F has an expected return of 10 percent and a standard deviation of 43 percent per year. Security G has an expected return of 15 percent and a standard deviation of 62 percent per year. a. What is the expected return on a portfolio composed of 30 percent of Security F and 70 percent of Security G? b. If the correlation between the returns of Security F and Security G is 25, what is the standardarrow_forward
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