1) You are considering three stocks with the following expected dividend yields and capital gains:
DIVIDEND YIELD CAPITAL GAIN
A 14% 0%
B 8% 6%
C 0 14%
A) What is the expected return on each stock?
B) How many transactions costs and capital gains taxes affect your choices among the three securities?

3. You are given the following information concerning two stocks:
A B
Expected Return 10% 14%
Standard deviation of the expected return 3.0% 5.0%
Correlation coefficient of the returns -.1%

a) What is the expected return on a portfolio consisting of 40 percent in stock A and 60 percent in stock B?
b) What is the standard deviation of this portfolio?
c) Discuss the risk and return associated with investing (a) all your funds in stock A, (b) all your funds in stock B, and (c) 40 percent in A and 60 percent in B. (This answer must use the numerical information in your answers derived above.)

5. What is the beta of a portfolio consisting of one share of each of the following stocks given their respective prices and beta coefficients?
Stock Price Beta
A $10 1.4
B $24 0.8
C $41 1.3
D $19 1.8
How would the portfolio beta differ if (a) the investor purchased 200 shares of stocks B and C for every 100 shares of A and D and (b) equal dollar amounts were invested in each stock?

6. What is the return on a stock according to the security market line if the risk-free rate is 6 percent, the return on the market is 10 percent, and the stock's beta is 1.5? If the beta had been 2.0, what would be the return? Is this higher return consistent with the portfolio theory?

Solution Summary

Stock Expected Returns, Risk (standard deviation) of a portfolio etc. have been calculated.

Stock Portfolio Risk and Return: beta, CAPM, risk free rate, variance ... invested in Stock A and $1,400 invested in Stock B. If the expected returns on these ...

... The expected return on a portfolio can ... portfolio consists of perfectly positively correlated stocks. ... eliminated by diversifying assets with different returns. ...

... A negative covariance means that the returns are not related to ...risk-free rate is 6% and the expected return on the ...Stock A Expected Return = 11% Beta = 1.5. ...

... a is false because required returns depend on systemic risk of the stocks represented by beta. Since beta are different required return of the two stocks would ...

... investors too can make money in the stock market. ... which are high risks with high returns, Certificate of ... which are low-risks with lower-return outfits, Mutual ...

... What is the risk-adjusted required rate of return for a ... cost of preferred stock, and The cost of common stock. ... is likely to occur in the future returns from the ...

... Portfolio Returns and Deviations Consider the following information about ... Probability of State of Rate of Return if State Economy Occurs Stock A Stock B ...