Modern Portfolio Theory

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Modern Portfolio Theory Questions and Answers

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You invested $19,000 in two accounts paying 2% and 3% annual interest, respectively. If the total interest earned for the year was $550, how much was invested at each rate?
The beta of Sanafil is 1.2. Sanafil is evaluating a merger with Matra, a firm that has a beta of 0.95. Sanafil's stock sells for no per share and there are 10 million shares outstanding. Matra's st...
What is an efficient portfolio?
You have $15,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 8% and Stock Y with an expected return of 15%. If your goal is to create a portfolio with an exp...
What are the portfolio weights for a portfolio that has 180 shares of Stock A that sell for $18 per share and 55 shares of Stock B that sell for $20 per share? (Do not round intermediate calculatio...
What are the portfolio weights for a portfolio that has 100 shares of Stock XYZ that sell for $40 per share and 74 shares of Stock ABC that sell for $22.50 per share? (Do not round intermediate cal...
What is the variance of a portfolio consisting of $5,500 in stock G and $4,500 in H? Assume that the covariance between G and H is 0.00024024
Stock A has a variance of 0.04. Stock B has a variance of 0.09. What can the minimum/maximum standard deviation of a portfolio with 20% in A and 80% in B be?
You are considering investing $1,000 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 4% and a risky portfolio, P, constructed with two risky securities X and...
You are given the following set of data: Historical Excess Rate of Return year NYSE Stock X 1 -9.3% -10.7% 2 5.4% 4.3% 3 16.8% 25.6% 4 -3.2% 0.3% 5 6.7% 6.9% Determine stock X's beta coefficient.
Fill in the following table, supplying all the missing information. Use this information to calculate the security's beta. Returns Return Deviations SquaredDeviations Product of Deviations Year...
Annual Returns for Stocks, Bonds, and T-Bills 2000 to 2009 | | | Stocks (S&P 500) |Bonds|T-bills |2000|Annual return|-9.1%|20.1%|5.9% | 2001|Annual return|-11.9|4.6|3.5 | 2002|Annual return|-22.1...
Determine the beta for Stock A based on the following set of returns. Of course, the reliability of a beta calculated with only four data points may be low. Interpret the beta that you have calcula...
You have developed data which give (1) the average annual returns on the market for the past five years, and (2) similar information on Stocks A and B. If these data are as follows, which of the po...
Realized rates of return Stocks A and B have the following historical returns: Year Stock A's Returns rA Stock B's Returns rB 2011 -18.10% -15.90% 2012 35.75 25.10 2013 13.25 22.50 2014...
Which of the following statements concerning financial risk is false? a) Generically, financial risk is related to the probability of a return that is less than expected. b) If the returns on two...
Stock X has a 9.5% expected return, a beta coefficient of 0.8, and a 40% standard deviation of expected returns. Stock Y has a 12.0% expected return, a beta coefficient of 1.1, and a 30.0% standard...
Refer to the table below. | |3 Doors, Inc.|Down Co. |Expected return, E (R)|15%|5.5% |Standard deviation, sigma |30|14 |Correlation| | |.33 Using the information provided on the two stocks in...
What is the standard deviation of the returns on a 30,000 portfolio, which consists of stocks S and T Stock S is valued at 21.000. Refer to the table below.
A DI has assets of $10 million consisting of $1 million in cash and $9 million in loans. The DI has core deposits of $6 million, subordinated debt of $2 million, and equity of $2 million. Increases...
Carol invested $2,560 into two accounts. One account paid 8% interest, and the other paid 6% interest. She earned 7.25% interest on the total investment. How much money did she put in each account?
You have $28,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 13% and Stock Y with an expected return of 10%. If your goal is to create a portfolio with an ex...
You own a portfolio that is 15% invested in Stock X, 70% in Stock Y, and 15% in Stock Z. The expected returns on these three stocks are 10%, 15%, and 7%, respectively. What is the expected return o...
You own a portfolio that is 36% invested in Stock X, 26% in Stock Y, and 38% in Stock Z. The expected returns on these three stocks are 10%, 16%, and 12%, respectively. What is the expected return...
You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a beta of 0.70 and the total portfolio is equally as risky as the market, what must the beta be fo...
You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a beta of 1.05 and the total portfolio is equally as risky as the market, what must the beta be fo...
If a stock portfolio is well diversified, then the portfolio variance: a. will equal the variance of the most volatile stock in the portfolio. b. may be less than the variance of the least risky st...
Which one of the following statements related to risk is correct? a. The beta of a portfolio must increase when a stock with a high standard deviation is added to the portfolio. b. Every portfolio...
You own a portfolio that has $500 invested in Stock A, $2,000 invested in Stock B, and $2,200 invested in Stock Z. If the expected returns on these stocks are 10%, 12.5% and 6%, respectively, what...
You own a stock portfolio invested 20% in Stock Q, 20% in Stock R, 20% in Stock S, 20% in Stock T, and 20% in Stock U. The betas for these five stocks are 0.15, 1.00 1.15, 1.70, and 2.00 respective...
You own a stock portfolio invested 10% in Stock Q, 25% in Stock R, 25% in Stock S, and 40% in Stock T. The betas for these four stocks are 0.55, 1.12, 1.13, and 1.55, respectively. What is the port...
You own a stock portfolio invested 30% in Stock Q, 25% in Stock R, 25% in Stock S, and 20% in Stock T. The betas for these four stocks are 0.95, 1.12, 1.13, and 1.30, respectively. What is the port...
A stock has an expected return of 15%, the risk-free rate is 5%, and the market risk premium is 18%. What must the beta of this stock be? (Do not round intermediate calculations. Round your answer...
Return Year Stock A Stock B Stock C 1 15% 12% 5% 2 25% 14% -6% 3 8% 9% 10% 4 16% 25% 1% 5 5% 3% 15% Given the data above. a. What is the standard deviation of returns for stock A? b. What is th...
Give an example of two variables which are positively correlated.
Suppose the standard deviation of the market return is 20%. What is the standard deviation of returns on a well-diversified portfolio with a beta of 1.3? Calculate using excel.
Suppose that you currently have $250,000 invested in a portfolio with an expected return of 12% and a volatility of 10%. The efficient (tangent) portfolio has an expected return of 17% and a volati...
The risk-free rate is 6% and the market risk premium is 5%. Your $1 million portfolio consists of $700,000 invested in a stock that has a beta of 1.2 and $300,000 invested in a stock that has a bet...
The stock of Koch Brickyard, Inc., is expected to return 14 percent with a standard deviation of 5 percent. Uptown Potbelly Stove Works stock is expected to return 16 percent with a standard devia...
Your company owns the following bonds: Bond A Market Value $13 million Duration 2 Bond B Market Value $18 million Duration 4 Bond C Market Value $20 million Duration 3 If general interest rates ris...
A firm wishes to assess the impact of changes in the market return on an asset that has a beta of 0.8. 1) If the market return increased by 18%, what impact would this change be expected to have on...
A company has a portfolio of stocks worth $100 million. The beta of the porfolio is 1.2. The company would like to use the CME december futures contract on the s&p 500 to change the beta of the por...
You want to create a portfolio equally as risky as the market, and you have $1,000,000 to invest. Given this information, fill in the rest of the following table: Asset Investment Beta Stock A $18...
Consider the following data for a one-factor economy. All portfolios are well diversified. Portfolio A E(r) 12% Beta 1.2 Portfolio F E(r) 6% Beta 0.0 Suppose that another portfolio, portfolio E, i...
Your portfolio allocates equal amounts to three stocks. All three stocks have the same mean annual return of 16 percent. Annual return standard deviations for these three stocks are 30 percent, 40...
Consider the following information: TABLE The portfolio is invested 30%t each in A and C and 40% in B. 1. What is the expected return of the portfolio? 2. What is the variance of this portfolio?...
Suppose Best Buy stock is trading for $20 per share for a total market cap of $6 billion, and Walt Disney has 1.8 billion shares outstanding. If you hold the market portfolio, and as part of it hol...
The following are the historic returns for the Chelle Computer Company: TABLE Based on this information, compute the following: a. The correlation coefficient between Chelle Computer and the Gene...
Historical nominal return for stock A is -8%, +10% and +22%. The nominal return for the market portfolio is +6%, +18% and -24%. Calculate the beta for stock A.
Lawrence Kryzanowski has a diversified portfolio of securities with a market value of $70,000 and an ACB (adjusted cost base) of $50,000. He expects an average compound growth rate of the value of...
Consider the three stocks in the follow table. Pt represents price at time t, and Qt represents shares outstanding at time t. Calculate the rate of return on an equally weighted index of the three...
Suppose your expectations regarding the rate of return of stocks A and B are as follows: If you decide to invest 40% in stock A and the remaining part in stock B, what would be your portfolio expec...
Assume that you manage a risky portfolio with an expected rate of return of 18% and a standard deviation of 31%. The T-bill rate is 4%. Your client's degree of risk aversion is A = 2.4, assuming a...
Assume that you manage a risky portfolio with an expected rate of return of 14% and a standard deviation of 46%. The T-bill rate is 4%. Your client chooses to invest 85% of a portfolio in your fund...
Consider the following information on a portfolio of three stocks: State of Probability of Stock A Stock B Stock C Economy State of Economy Rate of Return Rate of Return Rate of Return Boom.15 .04...
Answer the following questions: 2)Describe some of the problems and barriers often encountered by health professionals who enter management. 3) Identify some of the special management problems th...
Discuss beta and its importance. What type of investors would invest in a high beta stock and a low beta stock? Also, in your textbook, review the Real World case, focusing on "Beta, Beta, Who's Go...
The change in the value of New England Electric Inc. over the last two years is as follows: Year one - 7% Year two - 12%. During the same time, the S and P changed 6% in year one and 8% in year...
You want to create a portfolio equally as risky as the market, and you have $2,100,000 to invest. Given this information, fill in the rest of the following table: (Round answers to 2 decimal places...
Suppose that one investment has a mean return of 8% and a standard deviation of return of 14%. Another investmenthas a mean return of 12% and a standard deviation of return of 20%. The correlation...
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