1 A portfolio is created by investing 1750 in Stock A and 2750 in Stock B. Stock A has an

expected return of 14% and a volatility of 25%. Stock B has an expected return of 6% and a

volatility of 40%. The correlation of the returns of the two stocks is 0.2. The risk free rate is

3.1%.

Suppose that an additional investment of 1000 is made into Stock A. Calculate the increase

in Stock A’s required return resulting from this additional investment.

Group of answer choices

1.548% is the correct answer

2 A portfolio consists of three stocks: Stock A, Stock B, and Stock C. The table below

provides the covariances between the returns of each pair of stocks, the expected return

for each stock, and the proportion of the portfolio’s value that is represented by each stock.

The risk free rate is 2.5%. Calculate Stock A’s required return.

Stock A

Stock A 0.090

Stock B 0.036

Stock C 0.045

Stock B

Stock C

0.036

0.360

–0.060

0.045

–0.060

0.250

0.07936

0.0612

0.196

15.69% correct answer

Expected

Return

13%

30%

21%

Weight

40%

20%

40%

3 A portfolio of several stocks has a Sharpe ratio of 1.3 and a risk premium of 12%. Stock XYX

has a Sharpe ratio of 0.6 and a risk premium of 25%. The expected return of Stock XYZ is 29.5%

and the correlation between Stock XYZ and the portfolio is 0.5. Find the required return for

Stock XYZ with respect to the portfolio.

31.58% correct answer

4 A portfolio consists of two stocks, Stock A and Stock B. The volatility of Stock A is 0.5

and the volatility of Stock B is 0.25. The proportion of the portfolio’s value that is

represented by shares of Stock A is 0.3. The correlation of the returns of the two stocks is

0.6. Calculate the beta of Stock A with the portfolio.

Correct Answer

1.5066

5 A portfolio consists of three stocks: Stock A, Stock B, and Stock C. The table below

provides the covariances between the returns of each pair of stocks, the expected return

for each stock, and the proportion of the portfolio’s value that is represented by each stock.

Calculate the beta of Stock A with the portfolio.

Stock A

Stock A 0.360

Stock B 0.018

Stock C –0.090

Correct Answer

1.4887

Stock B

Stock C

0.018

0.040

0.024

–0.090

0.024

0.090

Expected

Return

0.27

0.18

0.11

Weight

0.25

0.25

0.5

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