20. You have a portfolio of the following four shares:
Share | Beta | Investment |
A | 0.80 | 100,000 |
B | 1.25 | 100,000 |
C | 1.00 | 075,000 |
D | 0.60 | 125,000 |
What is the expected rate of return on your portfolio if the risk-free rate of return is 9 per cent and the expected market rate of return is 16 per cent?
21. In year I, Mr. Suresh bought two stocks A and 13 (face value Rs.IO each) in large numbers in the open market at the then prevailing price. After five years, he would like to know the performance of these two stocks in terms of their annual returns vis-a-vis the market. Also, he would like to know whether to hold these two stocks or not. Hence he ...view middle of the document...
35 | 17 | 14 | 15 |
8% GDP growth | 0.25 | 20 | 19 | 17 |
9% GDP growth | 0.10 | 22 | 17 | 25 |
It is felt that the interest rate of 7 percent on the 91 days T-bill is a good approximation of the risk-free rate.
You are required to
a. Calculate the betas of Reliance and Hindalco and comment on your findings.
b. Find out whether the shares of Reliance and Hindalc" arc underpriced or overpriced.
c. Comment on the proportions of systematic and unsystematic risk in the two stocks.
23. The following information is available:
Expected return for the market = 14%
Standard deviation of market return = 20%
Risk-free return = 6%
Correction coefficient between stock A and the market = 0.7.
Correction coefficient between stock B and the market = 0.8.
Standard deviation for stock A = 24%
Standard deviation for stock B = 32%
(a) Calculate the beta for stock A and stock B.
(b) Calculate the required return for each stock.
24. The rates of return on stock A and market portfolio for 15 periods are given below.
Period | Return on Stock A(%) | Return of Market portfolio (%) | Period | Return on stock A (%) | Return on market portfolio (%) |
1 | 10 | 12 | 9 | -9 | 1 |
2 | 15 | 14 | 10 | 14 | 12 |
3 | 18 | 13 | 11 | 15 | -11 |
4 | 14 | 10 | 12 | 14 | 16...