Question

Ch 02: Assignment - Risk and Return: Part 1 You have observed the following returns over time: Stock X 16% Stock Y 11% Market 14% Year 2014 2015 2016 2017 2018 Assume that the risk-free rate is 0% and the market risk premium is 5%. 1. What are the betos of Stocks X and Y? Do not round Intermediate calculations. Round your answers to two decimal places Stock X: Stock Y: b. What are the required rates of return on Stocks X and Y? Do not round Intermediate calculations. Round your answers to two decimal places Stock X: Stock Y: c. What is the required rate of return on a portfolio consisting of 80% of Stock X and 20% of Stock Y? Do not found intermediate calculations. Round your answer to two decimal places

Answer 1

YEAR I dm² 2014 2015 2016 ____2017 2018 ५ MARKET Given Return Avg Return dm a-b 5.6 8.५ 12 5.6 6.4 -14 -19.6 2 5-6 - १. 5.6 5-6 10.56 ५०.१6 384.16 | 12.46 70.6 14 8.५ 28 579.2 STOCK X Given Ketum Average vetrol dy Year (dx * dm) a-b 16 17 ___७५ 2015 2016 2017 2018 8.6 ४.6 8.6 -12 7.4 8.4 -2006 -4.6 | १.५ 62.16 53.76 ५०3.76 16.16 78.96 615.2 8.6 8.6 YEAR Guren Reti. dy * dir 2014 STOCK Y Average netu. dy arb 5.2 5.8 -0.2 5-2 -1.2 5-2 -3.2 5-2 | ५.४ 2015 5.2 - 2016 2017 2018 ५४.72 - 1.28 14.12 11.52 ५०.32 240.५ 10 26

Variance M = Edm² = 579.2 = 115084 n Covariance (x,M) - Edx xd my_) — 615.2 = 123.04 n Covorauce (Y,^4) = { (dy kdm) => 240.4 = 48.08 5 Beta= Beta of stock X Covariance (x,y) = 123.04 Variance M 115.84 ) 1.06 tim Beta = Beta of Stock Covariance CY, M) = Varlance M Y 48.08 115084 > 0.415 or 0.42 Risk free nate CRF] = 6% Market Risk Premium (Rm - Rp] = 5% Osing CAPM, Eupected return = Rp + Beta (Rom - R$_) 6+ (1.0685) = 1103% ot (0.4245) = 8.1 %) for X for

Weight of x = 80% | Return of X = 1103% (c) ; Weight of Y = 20% ; return of Y = 8.1% Posttelio neturn = [11.3x80"] + [8.1X2004] = 9004 t 1062 10.66%
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