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.

... than expected and downside risk ie, returns that are ... volatilities but the correlations among the stocks are different. ... can get the same amount of return but by ...

... However, if risks and returns of stocks that are in the ... The more stocks in a portfolio, the more risks declined. Investors like more return and less risk. ...

... would affect stocks' prices and earned rates of return, (b) how ...risk premiums as measured by the historical difference between returns on stocks and returns...

... measure of risk than a stock's standard deviation of possible returns? 15. What interest rate, compounded monthly will yield the same rare of return as 6 ...

... The solution provides the difference between the risk and return of common stock versus corporate bonds and how diversification helps in minimizing losses. ...

Calculate WACC, required return, NPV, value of stock, risk, tax rate. ONE Calculate the weighted average cost of capital for the Luxury Porcelain Company. ...

... c. How does the correlation between the returns on A and ... Suppose the expected return on the market portfolio is 14.7 percent ... Morrow Inc.stock has a beta of 1.3 ...

...Stocks offer the chance of higher returns, but, as we ... in speculative stocks (or, really, any stock), you are ...risk in the hope of making an appreciable return. ...

... the portfolio while giving the same return as A ...returns) / standard deviation of market's returns Thus beta ... a multiple choice question on which stock should an ...