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    Chapter 13

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    Hương Lý
    1. The document contains examples of calculating expected portfolio returns using different stock weights and returns under various economic states. It also includes examples of calculating portfolio betas and variances. 2. Key concepts covered include using stock weights and expected returns to calculate portfolio expected return and risk, CAPM modeling to determine required returns, and impacts of changing portfolio allocations and economic conditions on return and risk. 3. Various statistical measures are computed such as standard deviation, covariance, and correlation to quantify portfolio risk.

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    Chapter 13

    Uploaded by

    Hương Lý
    60 views11 pages
    1. The document contains examples of calculating expected portfolio returns using different stock weights and returns under various economic states. It also includes examples of calculating portfolio betas and variances. 2. Key concepts covered include using stock weights and expected returns to calculate portfolio expected return and risk, CAPM modeling to determine required returns, and impacts of changing portfolio allocations and economic conditions on return and risk. 3. Various statistical measures are computed such as standard deviation, covariance, and correlation to quantify portfolio risk.

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    1. The document contains examples of calculating expected portfolio returns using different stock weights and returns under various economic states. It also includes examples of calculating portfolio betas and variances. 2. Key concepts covered include using stock weights and expected returns to calculate portfolio expected return and risk, CAPM modeling to determine required returns, and impacts of changing portfolio allocations and economic conditions on return and risk. 3. Various statistical measures are computed such as standard deviation, covariance, and correlation to quantify portfolio risk.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    60 views11 pages

    Chapter 13

    Uploaded by

    Hương Lý
    1. The document contains examples of calculating expected portfolio returns using different stock weights and returns under various economic states. It also includes examples of calculating portfolio betas and variances. 2. Key concepts covered include using stock weights and expected returns to calculate portfolio expected return and risk, CAPM modeling to determine required returns, and impacts of changing portfolio allocations and economic conditions on return and risk. 3. Various statistical measures are computed such as standard deviation, covariance, and correlation to quantify portfolio risk.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 11

    1,

    Total value = 135*48+165*29 = 11,265


    The portfolio weight for each stock :
    Weight_A = 135*48/11,265 = 0.58
    Weight_B = 165*29/11,265 = 0.42

    2, E(R_p) = w_x*R_x+w_y*R_y
    Total Value = 2,650 + 4,450 = 7,100
    The expected return on the portfolio :
    E(R_p) = (2,650/7,100)*8% + (4,450/7,100)*11% = 9.88%

    3, E(R_p) = w_x*R_x+w_y*R_y
    Return Weight
    Stock A 8% 35%
    Stock B 16% 20%
    Stock C 11% 45%
    E(R_p) = 8%*35%+16%*20%+11%*45% = 10.95%
    4,

    E(R_p) = w_x*R_x+w_y*R_y
    = w_x*R_x + (1-w_x)*R_y

    E(R_p)=10.85% = 11.5% * w_x + 9.4%*(1-w_x)


    =>> (11.5%*w_x - 9.4%*w_x) = 10.85% - 9.4%
    =>> w_x = 69.05%
    =>> w_y = 1-w_x = 1-69.05% = 30.95%
    The dollar amount invested in stock X :
    69.05% * 10,000 = 6,905
    The dollar amount invested in stock Y :
    30.95% * 10,000 = 3,095

    5,
    State of
    Probability Portfolio
    Economy
    Recession 0.20 -0.14
    Boom 0.80 0.17

    E(R_p)= 0.20*(-0.14)+0.80*0.17 = 10.80%

    6,
    State of
    Probability Portfolio
    Economy
    Recession 0.10 -0.18
    Normal 0.60 0.11
    Boom 0.30 0.26

    E(R_p) = 0.10*(-0.18)+0.60*0.11+0.30*0.26 = 12.60%

    7, Rate of Return
    State of
    Probability Stock A Stock B
    Economy
    Recession 0.15 0.04 -0.17
    Normal 0.55 0.09 0.12
    Boom 0.3 0.17 0.27

    E(R_A) =0.15*0.04 + 0.55*0.09 + 0.3*0.17 = 10.65%


    (σ_A)^2 =0.15*(0.04-0.1065)^2+0.55*(0.09-0.1065)^2+0.3*(0.17-0.1065)^2 =
    =>> σ_A = 4.50%

    E(R_B) = 0.15*(-0.17)+0.55*0.12+0.3*0.27 = 12.15%


    (σ_B)^2 = 0.15*(-0.17-0.1215)^2+0.55*(0.12-0.1215)+0.3*(0.27-0.1215) =
    =>> σ_B = 13.92%

    8, Return Weight
    Stock G 8% 25%
    Stock J 14% 55%
    Stock K 18% 20%

    E(R_p) = 8%*25%+14%*55%+18%*20% = 13.30%

    9,
    Rate of Return
    State of
    Probability Stock A Stock B Stock C
    Economy
    Boom 0.75 0.06 0.15 0.25
    Bust 0.25 0.11 -0.04 -0.08

    a, The expected return on an equally weighted portfolio of these three stocks


    =>> E(R_boom) = (0.06 + 0.15 + 0.25)/3 = 15.33%
    =>> E(R_bust) = (0.11 + (-0.04) + (-0.08)/3 = -0.33%
    E(R_p) = 0.75*15.33% + 0.25* (-0.33%) = 11.42%

    b, E(R_p) = 0.75*19.20% + 0.25*(-3.40%) = 13.55%


    (σ_p)^2 = 0.75 *(19.20%-13.55%)^2 + 0.25*(-3.40%-13.55%) = 0.96%

    10,
    Rate of Return
    State of
    Probability Stock A Stock B Stock C
    Economy
    Boom 0.10 0.35 0.45 0.27
    Good 0.60 0.16 0.10 0.08
    Poor 0.25 -0.01 -0.06 -0.04
    Bust 0.05 -0.12 -0.20 -0.09

    a, E(R_p) = 0.10*0.37 + 0.60*0.11 + 0.25*(-0.04) + 0.05*(-0.14) = 8.69%

    b, (σ_p)^2 = 0.10*(0.37-0.869)^2+0.60*(0.11-0.869)^2+0.25*(-0.04-0.869)^2+0.05*(-0.15-0.869)
    =>> (σ_p) = 12.15%

    11, Portfolio Beta


    Stock Q 20% 0.84
    Stock R 30% 1.17
    Stock S 35% 1.08
    Stock T 15% 1.36

    β_p = 20%*0.84+30%*1.17+35%*1.08+15%*1.36 = 1.10


    12,
    β_risk-free asset = 0
    A portfolio equally invested in a risk asset and two stock
    =>> β_p = 1/3*β_risk-free asset + 1/3*β_stock_1 + 1/3*β_stock2
    =>> 1.00 = 1/3 *0 + 1/3 *1.32 + 1/3 *(β_2)
    =>> β_2 = 0.19

    13, CAPM (Capital Asset pricing model )


    E(R_i)= R_f +( E(R_M) -R_f)*β_i
    = 3.8% + (10.3% -3.8%)*1.15
    = 11.28%

    14,
    E(R_i)= R_f + (E(R_M) -R_f)*β_i
    =>>10.2% = 4.1% + 7.2%*β_i
    =>> β_i = 0.85

    15,
    E(R_i)= R_f + (E(R_M) -R_f)*β_i
    =>> 11.05% = 3.6% + (E(R_M) - 3.6%)*1.13
    =>> E(R_M) = 10.19%

    16,
    E(R_i)= R_f + (E(R_M) -R_f)*β_i
    =>> 12.15% = R_f + ( 10.2% - R_f)*1.31
    =>> R_f= 3.91%

    17,
    SML slope = ( E(R_M) - R_f)/β_M
    =(11.8% -3.7%)/1.15
    = 0.07

    Percentage of Portfolio
    Portfolio In Expected Portfolio Beta
    Asset W Return
    0% 4% 0.00
    25% 6% 0.29
    50% 8% 0.58
    75% 10% 0.86
    100% 12% 1.15
    125% 14% 1.44
    150% 16% 1.73

    20,
    a, The expected returm on a portfolio that is equally invested in the two assets
    =>> E(R_p) = (10.5% + 2.4%)/2
    = 6.45%

    b,
    β_p = β_s * w_s + β_risk-free * (1-w_s)
    =>> 0.92 = 1.14 *w_s
    =>> w_s = 80.70%

    c,
    E(R_p) = E(R_s)*w_s + E(R_f)*(1-w_s)
    =>> 9% = 10.5% * w_s + 2.4%*(1-w_s)
    =>> w_s = 81.48%

    β_p = β_s * w_s + β_risk-free * (1-w_s)


    =>>β_p = 1.14 * 81.48% + 0*(1-81.48%)
    =>>β_p = 0.93
    d,
    β_p = β_s * w_s + β_risk-free * (1-w_s)
    =>> 2.28 = 1.14 *w_s + 0
    =>> w_s = 200%
    =>> w_f = 1-w_s = 100% -200% = -100%

    21,
    The return on a portfolio that is equally instead in large-company stocks and long-term governm
    =>> R_p = (12.1% + 5.9%)/2
    = 9.00%
    The return on a portfolio that is equaly invested in small-company stocks and Treasury bills
    =>> R_p = (16.9% + 3.5%)/2
    = 10.20%
    23, Rate of Return
    State of
    Probability Stock A Stock B Stock C
    Economy
    Boom 0.25 0.21 0.36 0.55
    Normal 0.60 0.17 0.13 0.09
    Bust 0.15 0.00 -0.28 -0.45

    a, E(R_p) = 0.25*0.34+0.60*0.14+0.15*(-0.20) = 13.70%


    (σ_p)^2 = 0.25*(0.34-0.137)^2+0.60*(0.14-0.137)^2+0.15*(-0.20-0.137)^2 =
    =>> σ_p = 16.53%

    b, Expected Risk Premium = E(R_p) - R_f


    = 13.70% - 3.80%
    = 9.90%

    c, Approximate Expected Real Return = Expected Nomial Return - Infaltion rate


    = 13.70% - 3.50%
    = 10.20%

    1+R = (1+r)*(1+h)
    =>> r = (1+R)/(1+h) -1
    =>> r = (1+13.70%)/(1+3.50%) -1
    =>> r = 9.86%

    24,
    Asset Investment Beta
    Stock A 185,000 0.80
    Stock B 320,000 1.13
    Stock C ? 1.29
    Risk-free ? 0

    Weight_A = 185,000/1,000,000 = 18.50%


    Weight_B = 320,000/1,000,000 = 32.00%

    Beta of portfolio = 1
    β_p = w_A *β_A +w_B *β_B + w_C*β_C + w_rf *β_rf
    =>> 1= 18.50% * 0.80 + 32.00% * 1.13 + w_C * 1.29 + 0
    =>> w_C = 38.02%

    =>> Investment C = 38.02% * 1,000,000 = 380,200

    =>> Investment Risk-free = 1,000,000 - 185,000 -320,000 -380,200


    = 114,800
    0.20%

    1.94%
    Portfolio

    19.20%
    -3.40%

    Portfolio

    0.37
    0.11
    -0.04
    -0.14

    ^2+0.05*(-0.15-0.869)^2 = 0.015
    nd long-term government bonds
    and Treasury bills

    Portfolio

    0.34
    0.14
    -0.20

    0.03

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