FIN305 HW2 NKU Principles Of Finance

Northern Kentucky University

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I will post the document it is about Finance ( Principles of Finance ) show me the work please and let me know if there is any question or you need any things about this assignment.

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FIN 305 Spring 2019 Homework 2 Note: Turn in page 3 only – Thanks! Due on February 5th Use the following information for problems 1 and 2: Stock A Stock B Average Ret 0.21 0.05 Weights 0.3 0.7 SD 0.40 0.15 Covariance between the stock returns -0.0095 Problem 1: What is the average rate of return of the portfolio above? Problem 2: What is the standard deviation of returns for the portfolio described above? Use the following information for problems 3 through 8: The risk-free rate of return is 4%, the required rate of return of the market portfolio is 10%. You invest \$10,000 in stock A, \$15,000 in stock B, \$50,000 in stock C, and \$50,000 in stock D. The average returns and standard deviations of the individual stocks are as follows: Beta Ret Standard Dev 2.0 Stock A 0.25 0.31 1.0 Stock B 0.16 0.36 0.8 Stock C 0.04 0.17 0.3 Stock D 0.02 0.08 Problem 3: What is the average rate of return of the portfolio consisting of these four stocks? Problem 4: Which stock has the highest amount of stand-alone risk? Problem 5: What is the beta of your portfolio? 1 Problem 6: Which stock has the highest amount of systematic risk? Problem 7: What is the required rate of return of the portfolio? Problem 8: Assume that you invest another \$150,000 in a fifth stock. Stock E has an average rate of return of 0.18, a standard deviation of returns of 0.22, and a beta of 1.8. What is the new portfolio’s beta? Problem 9: What is the equilibrium expected rate of return of the new portfolio? Problem 10: What is the required rate of return of Stock E? Bonus Problem 1: By combining stocks with ______________ in a portfolio, an investor would get big diversification benefits. a) b) c) d) High standard deviation of returns Positive correlation coefficients of stock returns Negative covariance of stock returns High beta coefficients Bonus Problem 2: Which of the following is true? S1: The stand-alone risk of a stock can completely be diversified away. S2: According to the Capital Asset Pricing Model (CAPM), the market risk of a stock is relevant. a) b) c) d) S1 is true but S2 is false S2 is true but S1 is false Both statements are true Both statements are false 2 Answer Page for HW 2 FIN 305 Name:_______________________________________ Problem 1: Problem 2: Problem 3: Problem 4: Problem 5: Problem 6: Problem 7: Problem 8: Problem 9: Problem 10: Bonus P1: Bonus P2: 3 ...
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Running head: ANALYSIS OF THE STOCK PORTFOLIO

Analysis of the portfolio stock
Student’s Name
Institutional Affiliation

1

ANALYSIS OF THE STOCK PORTFOLIO

2

Analysis of the portfolio stock
Problem 1
Computation of the average rate of return on the portfolio, there are number of steps which you need
to be conversant with them. First, calculate the value for total portfolio. It can be done by segregating
provided portfolio into annual periods. Then find first year’s ending value.
Stock
Return
Weight Product
A
21%
0.3
6.30%
B
5%
0.7
3.50%
Average return
9.80%
Problem 2
𝐶𝑂𝑉(𝑎,𝑏)

−0.0095

Correlation between stock A and B => 𝑆𝐷 𝑜𝑓 𝐴∗𝑆𝐷 𝑜𝑓 𝐵 = 0.4 𝑥 0.15 => -0.1583

Stock
A
B
Average return
Correlation

Return Weight
Product
21%
0.3
6.30%
5%
0.7
3.50%
9....

nkostas (29690)
Carnegie Mellon University
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