Accounting and finance

Risk and rates of return

Anggota Kelompok 2:
1) Mohamad Rivaldi Mole
2) Iga Mawarni
3) Farah Chaisani
4) Nurul Hittah Annisa

8/21/2023
 Accounting and Finance

8-7
Suppose you are the money manager of a $10 million investment fund. The fund consists of four
stocks with the following investments and betas:
Stock Investment (Million $) Beta
A 3 1.6
B 4 1.2
C 3 (0.6)

If the market’s required rate of return is 12% and the risk-free rate is 4%, what is the fund’s
required rate of return?
rRf = 4%
rm = 12%
Menghitung weight & Beta
Stok A = 3/10 x 1,6 = 0,48
Stok B = 4/10 x 1,2 = 0,48
Stok C = 3/10 x (-0,6) = -0,18
bp = 0,48 + 0,48 + 0,18 = 0.78
ri = rRf + (rm – rRf) bp
= 4% + (12% - 4% ) 0.78
= 10.24%
8-13
Consider the following information for Stocks A, B, and C. The returns on the three stocks are
positively correlated, but they are not perfectly correlated. (That is, each of the correlation
coefficients is between 0 and 1.)
Stock Expected Return Standard Deviation Beta
A 9.55% 15% 0.9
B 10.45% 15% 1.1
C 12.70% 15% 1.6

Fund P has one-third of its funds invested in each of the three stocks. The risk-free rate is 5.5%,
and the market is in equilibrium. (That is, required returns equal expected returns.)
a. What is the market risk premium (rM- rRF)?
b. What is the beta of Fund P?
c. What is the required return of Fund P?
d. Would you expect the standard deviation of Fund P to be less than 15%, equal to 15%, or
greater than 15%? Explain.
Jawaban:
a. Risk premium:
ri = rRf + (rm – rRf) bp
9.55 = 5.5 + (rm – 5.5)0.9
(rm – 5.5) = 4.5

10.45 = 5.5 + (rm – 5.5)1.1

(rm – 5.5) = 4.5

12.70 = 5.5 + (rm – 5.5)1.6

(rm – 5.5) = 4.5
b. Beta of fund P
bp = (1/3 x 0.9) + (1/3 x 1.1) + (1/3 x 1.6) = 1.2
c. ri = rRf + (rm – rRf) bp
ri = 5.5 + (10 – 5.5)1.2
ri = 10.9
d. Menurut kelompok kami, kami akan mengharapkan standard deviasi dibawah 15%
karena dibawah standar deviasi tersebut artinya resiko dari investasi lebih kecil
dikarenakan variasi dari probabilitas juga lebih kecil. Resiko yang kecil ini juga berarti
return yang didapat juga kecil.
e.
8-14
Suppose you held a diversified portfolio consisting of a $7,500 investment in each of 20 different
common stocks. The portfolio’s beta is 1.25. Now suppose you decided to sell one of the stocks
in your portfolio with a beta of 1.0 for $7,500 and use the proceeds to buy another stock with a
beta of 0.80. What would your portfolio’s new beta be?
Jawab:
N
Bp=∑ W i b i
i=1

7.500
Bp1=X +( x 1.0)
150.000
1.25= X +( 0 , 05 x 1.0)
X =1.2

7.500
Bp2=1 ,2+( x 0.8)
150.000
Bp2=1 ,2+(0.05 x 0.8)
Bp2=1 ,2+ 0.04

Bp2=1 ,24
8-18
Suppose you won the lottery and had two options: (1) receiving $0.5 million or (2) taking a
gamble in which, at the flip of a coin, you receive $1 million if a head comes up but receive zero
if a tail comes up.
a. What is the expected value of the gamble?
Proabilitas dari pelemparan koin = 1/2\
Expected value = ½ x $1 million = $0.5 million
b. Would you take the sure $0.5 million or the gamble?
Menurut kelompok kami, kami akan mengambil uang $0.5 juta karena lebih pasti dan kami
juga bukan tipe orang risk averter
c. If you chose the sure $0.5 million, would that indicate that you are a risk averter or a risk
seeker?
Ketika seseorang memiih untuk mengambil uang $0.5 juta maka terdapat indikasi bahwa
orang itu merupakan tipe orang yang risk averter. Hal ini karena pilihan yang lain sangat
berresiko walaupun return yang bisa saja didapatkan juga sangat besar bahkan dua kali lipat
dari tawaran pertama
d. Suppose the payoff was actually $0.5 million—that was the only choice. You now face the
choice of investing it in a U.S. Treasury bond that will return $537,500 at the end of a year or
a common stock that has a 50–50 chance of being worthless or worth $1,150,000 at the end
of the year.
1. The expected profit on the T-bond investment is $37,500. What is the expected dollar profit
on the stock investment?
expected dollar profit =( 0.5 ×0 )+ ( 0.5 ×1150000 )−500000=75000
2. The expected rate of return on the T-bond investment is 7.5%. What is the expected rate of
return on the stock investment?
( 0.5× 0 ) + ( 0.5 × 1150000 )−500000
e xpected rate of return= =0.15=15 %
500000
3. Would you invest in the bond or the stock? Why?
Sebagaimana dengan nomor-nomor sebelumnya, kelompok kami merupakan tipe orang risk
averter dimana pada pertanyaan ini kami memilih untuk menginvestasikan uang pada T-bond
dimana risk nya lebih kecil.
4. Exactly how large would the expected profit (or the expected rate of return) have to be on the
stock investment to make you invest in the stock, given the 7.5% return on the bond?
Expected rate of return pada stock investment harus lebih dari 15% untuk saya agar mau
menginvestasikan uang pada stock investment. Hal ini karena untung yang didapatkan akan
lebih besar apabila rate pengembaliannya lebih dari 15%
5. How might your decision be affected if, rather than buying one stock for $0.5 million, you
could construct a portfolio consisting of 100 stocks with $5,000 invested in each? Each of
these stocks has the same return characteristics as the one stock—that is, a 50–50 chance of
being worth zero or $11,500 at year-end. Would the correlation between returns on these
stocks matter? Explain.
Kelompok kami memilih untuk menginvestasikan uang pada portofolio yang terdiri dari 100
saham dengan harga $5000 per saham dibandingkan dengan menginvestasikan seluruh uang
ke dalam satu saham yang berharga 0.5 juta. Hal ini dikarenakan dengan menginvestasikan
pada berbagai macam saham, maka resiko yang ditanggung juga relative lebih kecil
disbanding dengan menaruh seluruh uang dalam satu investasi saham.
Korelasi antara return yang ada pada saham tentu berharga untuk kelompok kami
sebagaimana yang telah kami jelaskan pada penjelasan sebelumnya bahwasanya kelompok
kami adalah tipe orang yang risk averter sehingga korelasi nya sangat berpengaruh. Hal ini
karena Ketika terdapat saham yang returnya zero pada portofolio, uang yang hangus hanya
senilai $5000 dan kerugian pada uang tersebut bisa saja tergantikan dengan investasi saham
di portofolio yang berhasil dimana returnya sejumlah $11,500. Jenis investasi ini resiko nya
lebih kecil walaupun return yang didapat juga lebih sedikit. Kesimpulannya high risk high
return, begitupun sebaliknya