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    Tutorial Week 3

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    Nam Lê
    The document contains 12 questions about risk, return, diversification, standard deviation, beta, and portfolio theory. It asks the reader to calculate expected returns, standard deviations, and other metrics for various stock and portfolio scenarios. It also asks the reader to explain concepts like the relationship between risk and return, types of risk, and the benefits of diversification.

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    Download as DOCX, PDF, TXT or read online from Scribd

    Tutorial Week 3

    Uploaded by

    Nam Lê
    20 views2 pages
    The document contains 12 questions about risk, return, diversification, standard deviation, beta, and portfolio theory. It asks the reader to calculate expected returns, standard deviations, and other metrics for various stock and portfolio scenarios. It also asks the reader to explain concepts like the relationship between risk and return, types of risk, and the benefits of diversification.

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    Tutorial Week 3 (1)

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    The document contains 12 questions about risk, return, diversification, standard deviation, beta, and portfolio theory. It asks the reader to calculate expected returns, standard deviations, and other metrics for various stock and portfolio scenarios. It also asks the reader to explain concepts like the relationship between risk and return, types of risk, and the benefits of diversification.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    20 views2 pages

    Tutorial Week 3

    Uploaded by

    Nam Lê
    The document contains 12 questions about risk, return, diversification, standard deviation, beta, and portfolio theory. It asks the reader to calculate expected returns, standard deviations, and other metrics for various stock and portfolio scenarios. It also asks the reader to explain concepts like the relationship between risk and return, types of risk, and the benefits of diversification.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    You are on page 1of 2

    Tutorial Week 3

    Risk and Return


    Question 1

    Identify forms of return. Give an example and explain about possible returns of
    a stock. Why do investors prefer to use percentage return in assessing investment
    efficiency to dollar return?
    Question 2
    Discuss the statement indicating that “Higher risk requires higher rate of
    return”.
    Question 3
    How can risk be defined? Based on the effect, how can you classify types of
    risk? Explain the principle of diversification.
    Question 4
    What is the portfolio's standard deviation if you put 25% of your money into
    stock A which has a standard deviation of returns of 15% and the rest into stock B
    which has a standard deviation of returns of 10%? The correlation coefficient between
    the returns of the two stocks is +0.75.
    Question 5
    The correlation between assets D and E is +0.50. Asset D has a standard
    deviation of 40% and asset E has a standard deviation of 60%. What is the standard
    deviation of the portfolio if 40% is invested in asset D?
    Question 6
    The standard deviation of returns is 30% for Stock A and 20% for Stock B. The
    covariance between the returns of A and B is 0.006. What is the correlation of returns
    between stocks A and B?
    Question 7
    An investor put 60% of his money into a risky asset offering a 10% return with
    a standard deviation of returns of 8% and the balance in a risk- free asset offering 5%.
    What is the expected return and standard deviation of this portfolio?
    Question 8
    What is the required rate of return for a stock with a beta of 1.2, when the risk-
    free rate is 6% and the expected market return is 12%?
    Question 9
    The covariance of the market's returns with a stock's returns is .005. The
    standard deviation of the market's returns is 5%. What is the stock's beta?
    Question 10
    The Treasury bill rate is 7%, and the expected return on the market portfolio is
    12%. Using the capital asset pricing model (CAPM):
    • What is the risk premium on the market?
    • What is the required return on an investment with a beta 1.3?
    • If an investment with a beta of 0.6 offers an expected return of 9.8%, does it
    have a positive net present value (NPV)?
    • If the market expected a return of 11.5% on stock X, what is its beta?
    Question 11

    Suppose that we have information about a stock and a Treasury bill as below:

    Economic Rate of return on the Rate of return on the


    Probability
    status stock Treasury bill
    Downturn 0.3 - 8% 4%
    Normal 0.5 15% 4%
    Prosperity 0.2 22% 4%
    a. Calculate the expected rate of return on the stock and the bill.
    b. Calculate the standard deviation of return on the stock and the bill
    c. Calculate the expected rate of return and standard deviation of a
    portfolio combining 70% of investment on the stock and the remaining
    on the bill.
    Question 12
    Consider an economy only consists of three risky stocks with following details:
    Expected Standard
    Stock No. of shares Price return deviation
    A 100 4 8% 10%
    B 300 6 12% 14%
    C 100 5 10% 12%
    The correlation coefficient between the returns on any pair of stocks is 0.5.
    Calculate the expected rate of return and the standard deviation of the portfolio
    combining those three stocks.

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