FIN3300 Solution Ch13 (W 0804)

FIN3300 Solution Ch13 (W 0804) - Solution Chapter 13:...

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Unformatted text preview: Solution Chapter 13: Return, risk, and the Security Market Line Page 432-433 Questions: 1, 3, 5, 7, 9 10, 11 1. The portfolio weight of an asset is total investment in that asset divided by the total portfolio value. First, we will find the portfolio value, which is: Total value = 180($45) + 140($27) = $11,880 The portfolio weight for each stock is: Weight A = 180($45)/$11,880 = .6818 Weight B = 140($27)/$11,880 = .3182 3. The expected return of a portfolio is the sum of the weight of each asset times the expected return of each asset. So, the expected return of the portfolio is: E(R p ) = .60(.09) + .25(.17) + .15(.13) = .1160 or 11.60% 5. The expected return of an asset is the sum of the probability of each return occurring times the probability of that return occurring. So, the expected return of the asset is: E(R) = .25(.08) + .75(.21) = .1375 or 13.75% 7. The expected return of an asset is the sum of the probability of each return occurring times the probability of that return occurring. So, the expected return of each stock asset is: E(R A ) = .15(.05) + .65(.08) + .20(.13) = .0855 or 8.55% E(R B ) = .15(.17) + .65(.12) + .20(.29) = .1105 or 11.05% To calculate the standard deviation, we first need to calculate the variance. To find To calculate the standard deviation, we first need to calculate the variance....
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FIN3300 Solution Ch13 (W 0804) - Solution Chapter 13:...

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