If the expected rate of return on a stock is 12% and a risk-free (treasury) secu
ID: 2701409 • Letter: I
Question
If the expected rate of return on a stock is 12% and a risk-free (treasury) security yields 5%, what must be the risk premium for this stock?
In which of the following situations would you get the largest reduction in risk by spreading your portfolio across two stocks?
Why do stock market investors appear not to be concerned with unique (firm specific) risks when calculating expected rates of return?
What is the approximate standard deviation of returns if over the past four years an investment returned 8%, -12%, -13% and 15%?
You wish to invest in a portfolio of stocks A and B. The risk free rate is 4%.
A B
Expected return (%) 10 20
Volatility (standard deviation) (%) 15 25
Correlation coefficient between returns 0.3
What's the standard deviation of a portfolio with 30% in stock A?
The standard deviations of individual stocks are generally higher than the standard deviation of the market portfolio for which of the following reasons?
The risk reduction through diversification in a portfolio of two stocks
0%Explanation / Answer
a) 7%
b)The stock returns vary against each other.
c)There is no method to quantify unique risks.
d)12.29%
e)19.33%
f)Individual stocks have no diversification of risk
g) both statements are correct