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    Activity 2 - Risk, and Required Rate of Return: Essay

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    kyle Gipulan
    This document contains an activity on risk and required rate of return with three parts: 1) It asks to compare different risk preferences, which type is most common among financial managers, and defines coefficient of variation. 2) It provides problems calculating portfolio beta, market risk premium, and required rate of return given investment amounts and betas for two stocks. 3) It asks to compute expected return, variance, and standard deviation from a probability distribution, and calculates the new beta of a portfolio after selling one stock and purchasing another.

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    Activity 2 - Risk, and Required Rate of Return: Essay

    Uploaded by

    kyle Gipulan
    50 views1 page
    This document contains an activity on risk and required rate of return with three parts: 1) It asks to compare different risk preferences, which type is most common among financial managers, and defines coefficient of variation. 2) It provides problems calculating portfolio beta, market risk premium, and required rate of return given investment amounts and betas for two stocks. 3) It asks to compute expected return, variance, and standard deviation from a probability distribution, and calculates the new beta of a portfolio after selling one stock and purchasing another.

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    Risk, and Required Rate of Return

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    This document contains an activity on risk and required rate of return with three parts: 1) It asks to compare different risk preferences, which type is most common among financial managers, and defines coefficient of variation. 2) It provides problems calculating portfolio beta, market risk premium, and required rate of return given investment amounts and betas for two stocks. 3) It asks to compute expected return, variance, and standard deviation from a probability distribution, and calculates the new beta of a portfolio after selling one stock and purchasing another.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    50 views1 page

    Activity 2 - Risk, and Required Rate of Return: Essay

    Uploaded by

    kyle Gipulan
    This document contains an activity on risk and required rate of return with three parts: 1) It asks to compare different risk preferences, which type is most common among financial managers, and defines coefficient of variation. 2) It provides problems calculating portfolio beta, market risk premium, and required rate of return given investment amounts and betas for two stocks. 3) It asks to compute expected return, variance, and standard deviation from a probability distribution, and calculates the new beta of a portfolio after selling one stock and purchasing another.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 1

    Activity 2 – Risk, and Required Rate of Return

    Essay
    a. Compare the following risk preferences: (a) risk averse, (b) risk neutral, and (c) risk seeking. Which risk
    preference do you think is most common among financial managers?
    b. What is coefficient of variation? What does it tells about an investment’s risk that the standard
    deviation does not?
    c. Why is the correlation between asset returns important? How do correlation helps to construct a good
    portfolio?
    d. Why is systematic risk the only relevant risk?

    Problems
    A. Ball Corp. has an investment fund amounting to P1,000,000. The fun consist of two stocks as follows:
    Stock Investment Beta
    SMC 500,000 2
    APVI 500,000 1

    The market required rate of return is 9% while the risk-free rate is 4%


    1. What is the portfolio beta?
    2. What is the market Risk Premium?
    3. What is the required rate of return of the portfolio?

    B. Given the following probability distribution for Security PSE, compute for
    Outcome Probability Expected Return
    1 40% 10%
    2 60% 20%

    1. the expected return for Security PSE?


    2. The Variance for Security PSE is
    3. Standard deviation of returns for Security PSE?

    C. An investor holds a diversified portfolio with a beta equal to 1.5, consisting of a P100 investment in
    each of 10 different common stocks. He sold one of your stocks that has a beta equal to 0.5 for P100.
    The whole proceeds were used to purchase another stock that has a beta equal to 1. Determine the
    beta of the new portfolio?

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