Two shares X and Y are currently trading for $100 and $50. They are expected to pay dividends of $1 and $0.5 respectively for the next year. The expectations about the price of those two securities for three possible scenarios are summarized below. The market’s standard deviation is 0.10 and correlation between market and share X is 0.5 and correlation between market and share Y is 0.10. Scenarios Prices of share X Prices of share Y Probability Pessimistic $79 $45.5 0.2 Most likely $104 $54.5 0.5 Optimistic $124 $59.5 0.3 Find the expected return and standard deviation of a portfolio consisting of 30% invested in share X and 70% invested in share Y. Find the beta coefficient of the portfolio

Two shares X and Y are currently trading for $100 and $50. They are expected to pay dividends of $1 and $0.5 respectively for the next year. The expectations about the price of those two securities for three possible scenarios are summarized below. The market’s standard deviation is 0.10 and correlation between market and share X is 0.5 and correlation between market and share Y is 0.10. Scenarios Prices of share X Prices of share Y Probability Pessimistic $79 $45.5 0.2 Most likely $104 $54.5 0.5 Optimistic $124 $59.5 0.3 Find the expected return and standard deviation of a portfolio consisting of 30% invested in share X and 70% invested in share Y. Find the beta coefficient of the portfolio

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 20P

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