FIN305 HW2 NKU Principles Of Finance I will post the document it is about Finance ( Principles of Finance ) show me the work please and let me know if ther

FIN305 HW2 NKU Principles Of Finance I will post the document it is about Finance ( Principles of Finance ) show me the work please and let me know if there is any question or you need any things about this assignment. thanks, FIN 305 Spring 2019 Homework 2
Note: Turn in page 3 only – Thanks!
Due on February 5th
Use the following information for problems 1 and 2:
Stock A Stock B
Average Ret
0.21
0.05
Weights
0.3
0.7
SD
0.40
0.15
Covariance between the stock returns
-0.0095
Problem 1: What is the average rate of return of the portfolio above?
Problem 2: What is the standard deviation of returns for the portfolio described above?
Use the following information for problems 3 through 8: The risk-free rate of return is 4%, the required
rate of return of the market portfolio is 10%. You invest $10,000 in stock A, $15,000 in stock B, $50,000 in
stock C, and $50,000 in stock D. The average returns and standard deviations of the individual stocks are
as follows:
Beta
Ret Standard Dev
2.0
Stock A
0.25
0.31
1.0
Stock B
0.16
0.36
0.8
Stock C
0.04
0.17
0.3
Stock D
0.02
0.08
Problem 3: What is the average rate of return of the portfolio consisting of these four stocks?
Problem 4: Which stock has the highest amount of stand-alone risk?
Problem 5: What is the beta of your portfolio?
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Problem 6: Which stock has the highest amount of systematic risk?
Problem 7: What is the required rate of return of the portfolio?
Problem 8: Assume that you invest another $150,000 in a fifth stock. Stock E has an average rate of return
of 0.18, a standard deviation of returns of 0.22, and a beta of 1.8. What is the new portfolio’s beta?
Problem 9: What is the equilibrium expected rate of return of the new portfolio?
Problem 10: What is the required rate of return of Stock E?
Bonus Problem 1: By combining stocks with ______________ in a portfolio, an investor would get big
diversification benefits.
a)
b)
c)
d)
High standard deviation of returns
Positive correlation coefficients of stock returns
Negative covariance of stock returns
High beta coefficients
Bonus Problem 2: Which of the following is true?
S1: The stand-alone risk of a stock can completely be diversified away.
S2: According to the Capital Asset Pricing Model (CAPM), the market risk of a stock is relevant.
a)
b)
c)
d)
S1 is true but S2 is false
S2 is true but S1 is false
Both statements are true
Both statements are false
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Answer Page for HW 2 FIN 305
Name:_______________________________________
Problem 1:
Problem 2:
Problem 3:
Problem 4:
Problem 5:
Problem 6:
Problem 7:
Problem 8:
Problem 9:
Problem 10:
Bonus P1:
Bonus P2:
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