you would like to combine a risky stock with a beta of 1.94 with US treasury bills in such a way that the risk level of the portfolio is equivalent to the risk level of the overall market. what percentage of the portfolio should be invested in the risky stock?
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- You would like to combine a highly risky stock with a beta of 2.6 with U.S. Treasury bills in such a way that the risk level of the portfolio is equivalent to the risk level of the overall market. What percentage of the portfolio should be invested in Treasury bills?You want to construct a portfolio containing equal amounts of U.S. Treasury bills, stock A, and stock B. If the beta of the stock A is 0.87 and the beta of the portfolio is 0.92, what does the beta of stock B have to be?You would like to combine a risky stock with a beta of 1.86 with U.S. Treasury bills in such a way that the risk level of the portfolio is equivalent to the risk level of the overall market. What percentage of the portfolio should be invested in the risky stock? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
- You want to construct a portfolio containing equal amounts of U.S. Treasury bills, stock A, and stack the beta of the stock A is 1.38 and the beta of the is 0.98 what does the beta of stock B have to be?In a CAPM world, what do you need to know in order to estimate an asset's expected return? Group of answer choices The risk free rate, the market risk premium, and the asset's standard deviation The risk free rate, the market risk premium, and the asset's beta The corporate bond rate, the expected return on the S&P 500 and the asset's Beta Market sentiment, historical stock returns and the risk free rateWhich one of the following portfolios will have a beta of zero? Group of answer choices A portfolio that is equally as risky as the overall market A portfolio that consists of a single stock A portfolio comprised solely of U. S. Treasury bills No portfolio can have a beta of zero.
- Consider the following table, which gives a security analyst's expected return on two stocks in two particular scenarios for the rate of return on the market: Market Return 6% 22 Aggressive Stock -3% 35 Defensive Stock 4% 12 Required: a. What are the betas of the two stocks? b. What is the expected rate of return on each stock if the two scenarios for the market return are equally likely? e. What hurdle rate should be used by the management of the aggressive firm for a project with the risk characteristics of the defensive firm's stock if market return is equally likely to be 6% or 22% ? Also, assume a T-Bill rate of 4%. Complete this question by entering your answers in the tabs below. Required A Required B Required E What are the betas of the two stocks? Note: Do not round intermediate calculations. Round your answers to 2 decimal places. Aggressive stock Defensive stock BetaWhich one of the following portfolios will have a beta of zero? a) A portfolio that is equally as risky as the overall market b) A portfolio that consists of a single stock c) A portfolio comprised solely of U. S. Treasury bills d) No portfolio can have a beta of zero.The security market line (SML) is an equation that shows the relationship between risk as measured by beta and the required rates of return on individual securities. The SML equation is given below: Required return on Stock = Risk-free return + (Market risk premium) (Stock's beta) If a stock's expected return plots on or above the SML, then the stock's return is sufficient ✓to compensate the investor for risk. If a stock's expected return plots below the SML, the stock's return is insufficient to compensate the investor for risk. The SML line can change due to expected inflation and risk aversion. If inflation changes, then the SML plotted on a graph will shift up or down parallel to the old SML. If risk aversion changes, then the SML plotted on a graph will rotate up or down becoming more or less steep if investors become more or less risk averse. A firm can influence market risk (hence its beta coefficient) through changes in the composition of its assets and through changes in the…
- Given that the formula for CAPM is Expected return= risk free rate + Beta*(Return on market - risk free rate), Security A has a beta of 1.16 and an expected return of .1137 and Security B has a beta of .92 and expected return of .0984. If these securities are assumed to be correctly priced, what is their risk free rate? Based on CAPM, what is the return on the market?What is a stock's alpha? Group of answer choices The amount you expect to earn on a security relative to some appropriate "benchmark" that appropriately reflects the risk of that investment In a CAPM world, if a stock is on the security market line, it's alpha is zero If you earn a return on security greater than the market overall, then you generated positive alpha In a CAPM world, you invest in a stock that has a Beta of 1. If you earn a return greater than the market, then you generated positive alpha In a CAPM world, you invest in a stock that has a Beta of 2. If you earn a return greater than the market, then you generated positive alphaConsider the following table, which gives a security analyst's expected return on two stocks in two particular scenarios for the rate of return on the market: Market Return 6% 22 Aggressive Stock -3% 35 Defensive Stock 4% 12 Required: a. What are the betas of the two stocks? b. What is the expected rate of return on each stock if the two scenarios for the market return are equally likely? e. What hurdle rate should be used by the management of the aggressive firm for a project with the risk characteristics of the defensive firm's stock if market return is equally likely to be 6% or 22% ? Also, assume a T-Bill rate of 4%.