In: Finance
4
a) Tyler Trucks stock has an annual return mean and standard deviation of 10 percent and 22 percent, respectively. Michael Moped Manufacturing stock has an annual return mean and standard deviation of 16 percent and 32 percent, respectively. Your portfolio allocates equal funds to Tyler Trucks stock and Michael Moped Manufacturing stock. The return correlation between Tyler Trucks and Michael Moped Manufacturing is 0.5. What is the smallest percentageexpected loss for your portfolio in the coming month with a probability of 5 percent? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round the z-score value to 3 decimal places when calculating your answer. Enter your answer as a percent rounded to 2 decimal places.)
b) You are constructing a portfolio of two assets, Asset A and Asset B. The expected returns of the assets are 13 percent and 28 percent, respectively. The standard deviations of the assets are 13 percent and 33 percent, respectively. The correlation between the two assets is 0.19 and the risk-free rate is 5 percent. What is the optimal Sharpe ratio in a portfolio of the two assets? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your Sharpe ratio answer to 4 decimal places when calculating your answer. )
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