QUESTION 62 1. You invest $100 in the market portfolio with an expected return o

Question

QUESTION 62 1. You invest $100 in the market portfolio with an expected return of 12% and a standard deviation of 15%, and a T-bill that pays 5%. If you desire to form a portfolio with an expected return of 10%, what percentages of your money must you invest in the market portfolio?
45.3%
65.5%
71.4%
83.5%
85.24%

1 points    QUESTION 63 1. The market portfolio has an expected return of 12% and a standard deviation of 20 %. The standard deviation of ABC Company's stock is 40% and its correlation coefficient with the market portfolio is 0.6.What is the beta of ABC's stock?
0.75
0.9
0.95
1.0
1.2
QUESTION 62 1. You invest $100 in the market portfolio with an expected return of 12% and a standard deviation of 15%, and a T-bill that pays 5%. If you desire to form a portfolio with an expected return of 10%, what percentages of your money must you invest in the market portfolio?
45.3%
65.5%
71.4%
83.5%
85.24%

1 points    QUESTION 63 1. The market portfolio has an expected return of 12% and a standard deviation of 20 %. The standard deviation of ABC Company's stock is 40% and its correlation coefficient with the market portfolio is 0.6.What is the beta of ABC's stock?
0.75
0.9
0.95
1.0
1.2
QUESTION 62 1. You invest $100 in the market portfolio with an expected return of 12% and a standard deviation of 15%, and a T-bill that pays 5%. If you desire to form a portfolio with an expected return of 10%, what percentages of your money must you invest in the market portfolio?
45.3%
65.5%
71.4%
83.5%
85.24%

1 points    QUESTION 63 1. The market portfolio has an expected return of 12% and a standard deviation of 20 %. The standard deviation of ABC Company's stock is 40% and its correlation coefficient with the market portfolio is 0.6.What is the beta of ABC's stock?
0.75
0.9
0.95
1.0
1.2

Explanation / Answer

QUESTION 62:

Assume that market portfolio’s weight in Portfolio = x

And risk free rate (T-bills)’s weight in Portfolio = 1-x

Therefore,

Expected return of portfolio = x * Expected return of market portfolio + (1-x) * Expected return of T-bill

Where,

Expected return of portfolio = 10%

Expected return of market portfolio = 12%

Expected return of T-bill = 5%

Now putting the values in above equation, we get

10% = x * 12% + (1-x) * 5%

Or 10% - 5% = (12% – 5%)* x

Or 5% = 7% * x

Or x = 5%/7% = 0.714 or 71.4%

Therefore the portfolio weight of market in your portfolio is 0.714 or 71.4%

Therefore correct answer is option: 71.4%

QUESTION 63:

Beta of stock ABC = (Correlation coefficient between the market returns and Stock ABC return * Standard deviation of stock ABC) / standard deviation of the market return

= (0.6 * 40%)/ 20%

= 1.2

The beta of ABC's stock is 1.2

Therefore correct answer is option: 1.2

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