1. Using last 5 years' adjus.close monthly price data of any 3 stocks you pick,

a. Compute the beta of each stock by plotting the characteristic lines of the stocks.

b. Compute the beta of the portfolio that invests an equal amount of money on each stock.

 

2. Building a portfolio that invests an equal amount of money on any 2 stocks you pick,

a. Compute the risk and expected return of each stock using last 5 years' adjus.close monthly price data.

b. Compute the risk and expected return of the portfolio. 

c. Change the portfolio composition (by changing the proportion of the stocks) using the Scenario Analysis tool or the Data Table tool (You can watch Youtube videos to learn how to use these tools). 

d. Show how the expected return of the portfolio changes as the risk of the portfolio changes by plotting a scatter diagram (risk on the x-axis, exp.ret. on the y-axis)

You own a portfolio that has $1,500 invested in Stock A and $2,600 invested in Stock B. If the expected returns on these stocks are 10 percent and 16 percent, respectively, what is the expected return on the portfolio?

Problem 1:

You invest in a portfolio of 5 stocks with an equal investment in each one. The betas of the 5 stocks are as follows: .75, -1.2, .90, 1.3, 1.5. The risk free return is 4% and the market return is 9%. (Not a multiple choice problem)

A. Compute the beta of the portfolio

B. Compute the required return of the portfolio

Problem 2:

You are given the following probability distribution for a stock: (Not a multiple choice problem)

Pr. Outcome.5
.4 10%
.1 -6%
.5 12%

A. Compute the expected return of this stock

B. Compute the standard deviation

Problem 3:

You are given the following probability distribution for a stock: (Not a multiple choice problem)


Pr. Outcome.6
.4 -4%
.6 12%

A. Compute the expected return

B. Compute the standard deviation

C. Presuming the stock returns are normally distributed, what do these results indicate?

Problem 4:

A stock has a beta of 0.8. The market return is 14% and the risk free return is 3%. Compute the required return for this stock.

An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return on 21% and a standard deviation of return of 39%. Stock B has an expected return of 14% and a standard deviation of return of 20%. The correlation coefficient between the returns of A and B is 0.4. The T-Bill rate of return is 5%.

A) The portion of the optimal risky portfolio that should be invested in stock B is what?

B) What is the expected return on the optimal risky portfolio?

C) Investors wants to have an expected return of 10% for a complete portfolio. What proportion of his investment is in T-Bills?

D) What proportion of the investor's complete portfolio is in stock A and in stock B?