Risk and Return
ANALYZING A PORTFOLIO a 58. You want your portfolio beta to be 1.20. Currently, your portfolio consists of $100 invested in stock A with a beta of 1.4 and $300 in stock B with a beta of .6. You have another $400 to invest and want to divide it between an asset with a beta of 1.6 and a risk-free asset. How much should you invest in the risk-free asset? a. $0 b. $140 c. $200 d. $320 e. $400
ANALYZING A PORTFOLIO d 59. You have a $1,000 portfolio which is invested in stocks A and B plus a risk-free asset. $400 is invested in stock A. Stock A has a beta of 1.3 and stock B has a beta of .7. How much needs to be invested in stock B if you want a portfolio beta of .90? a. $0 b. $268 c. $482 d. $543 e. $600
EXPECTED RETURN c 60. You recently purchased a stock that is expected to earn 12 percent in a booming economy, 8 percent in a normal economy and lose 5 percent in a recessionary economy. There is a 15 percent probability of a boom, a 75 percent chance of a normal economy, and a 10 percent chance of a recession. What is your expected rate of return on this stock? a. 5.00 percent b. 6.45 percent c. 7.30 percent d. 7.65 percent e. 8.30 percent
EXPECTED RETURN a 61. The Inferior Goods Co. stock is expected to earn 14 percent in a recession, 6 percent in a normal economy, and lose 4 percent in a booming economy. The probability of a boom is 20 percent while the probability of a normal economy is 55 percent and the chance of a recession is 25 percent. What is the expected rate of return on this stock? a. 6.00 percent b. 6.72 percent c. 6.80 percent d. 7.60 percent e. 11.33 percent
EXPECTED RETURN b 62. You are comparing stock A to stock B. Given the following information, which one of these two stocks should you prefer and why? Rate of Return if State of Probability of State Occurs
ANALYZING A PORTFOLIO d 59. You have a $1,000 portfolio which is invested in stocks A and B plus a risk-free asset. $400 is invested in stock A. Stock A has a beta of 1.3 and stock B has a beta of .7. How much needs to be invested in stock B if you want a portfolio beta of .90? a. $0 b. $268 c. $482 d. $543 e. $600
EXPECTED RETURN c 60. You recently purchased a stock that is expected to earn 12 percent in a booming economy, 8 percent in a normal economy and lose 5 percent in a recessionary economy. There is a 15 percent probability of a boom, a 75 percent chance of a normal economy, and a 10 percent chance of a recession. What is your expected rate of return on this stock? a. 5.00 percent b. 6.45 percent c. 7.30 percent d. 7.65 percent e. 8.30 percent
EXPECTED RETURN a 61. The Inferior Goods Co. stock is expected to earn 14 percent in a recession, 6 percent in a normal economy, and lose 4 percent in a booming economy. The probability of a boom is 20 percent while the probability of a normal economy is 55 percent and the chance of a recession is 25 percent. What is the expected rate of return on this stock? a. 6.00 percent b. 6.72 percent c. 6.80 percent d. 7.60 percent e. 11.33 percent
EXPECTED RETURN b 62. You are comparing stock A to stock B. Given the following information, which one of these two stocks should you prefer and why? Rate of Return if State of Probability of State Occurs