XYZ Investment Corporation is considering a portfolio with 70% weighting in a cyclical stock and 30%...

XYZ Investment Corporation is considering a portfolio with 70% weighting in a cyclical stock and 30% weighting in a countercyclical stock. It is expected that there will be three economic states; Good, Average and Bad, each with equal probabilities of occurrence. The cyclical stock is expected to have returns of 25%, 5% and 1% in Good, Average and Bad economies respectively. The countercyclical stock is expected to have returns of -8%, 2% and 14% in Good, Average and Bad economies respectively. Given this information, calculate portfolio variance.

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jeff jeffy answered 2 years ago

XYZ Investment Corporation is considering a portfolio with 70% weighing in a cyclical stock and 30%...

XYZ Investment Corporation is considering a portfolio with 70% weighing in a cyclical stock and 30% weighing in a countercyclical stock. It is expected that there will be three economic states; Good, Average, and Bad, each with equal probabilities of occurrence. The cyclical stock is expected to have returns of 25%, 5%, and 1% in Good, Average, and Bad economics respectively. The countercyclical stock is expected to have returns of -8%, 2%, and 14% in Good, Average, and Bad economies respectively....

You have a portfolio which is comprised of 30 percent of stock A and 70 percent...

You have a portfolio which is comprised of 30 percent of stock A and 70 percent of stock B. What is the portfolio standard deviation? State of the Economy Probability E(R) A E(R) B 30% 70% Boom 0.15 20.00 14.00 Normal 0.75 11.00 9.00 Recession 0.10 -23.00 -5.00 A. 6.68% B. 6.82% C. 7.47% D. 4.00% E. 5.56% The answer is not C.

1a) In your portfolio you have invested 30% and 70% in Stock X and Stock Z,...

1a) In your portfolio you have invested 30% and 70% in Stock X and Stock Z, respectively. The standard deviation of X is 12%. The standard deviation of Z is 9%. The correlation between X and Z is 0.50. Calculate the portfolio standard deviation. 1b) For the same problem before, now calculate the portfolio standard deviation if the correlation between X and Z is -0.50.

Question 1: A medium-sized finance company is considering an investment portfolio of 40% of stock A...

Question 1: A medium-sized finance company is considering an investment portfolio of 40% of stock A and remaining 60% in stock B over the next four years (2020-2023). Given the returns of two stocks A and B in the table below over the four-year period, calculate the following: (3.5 marks) Stock A Stock B 2020 10% 9% 2021 12% 8% 2022 13% 10% 2023 15% 11% Calculate the expected portfolio return, rp, for each of the four years. Calculate the...

You decide to invest in a portfolio consisting of 30 percent Stock A, 30 percent Stock...

You decide to invest in a portfolio consisting of 30 percent Stock A, 30 percent Stock B, and the remainder in Stock C. Based on the following information, what is the expected return of your portfolio? State of Economy Probability of State Return if State Occurs of Economy Stock A Stock B Stock C Recession .17 - 18.8 % - 3.9 % - 22.8 % Normal .45 10.2 % 8.5 % 17.1 % Boom .38 28.6 % 15.8 % 31.7...

You invest your money in a portfolio that consists of 70% of Fund X and 30%...

You invest your money in a portfolio that consists of 70% of Fund X and 30% of Fund B. The annual return for X is 10% and the standard deviation is 15%. The annual return for Y is 9% and the standard deviation is 19%. The correlation between X and Y is 0.60. a. Compute the return and standard deviation of your portfolio invested? b. Assuming you hold this portfolio for over 20 years, what is the probability of return...

You are a bond portfolio manager at XYZ and the investment committee has asked you to...

You are a bond portfolio manager at XYZ and the investment committee has asked you to buy a bond with price B1 and sell short a certain quantity N of a second bond with price B2: Bond with price B1 is a 1-year zero coupon bond with a yield-to-maturity of 1% Bond with price B2 is a 2-year zero coupon bond with a yield-to-maturity of 2% The resulting portfolio value is Π = B1- NB2 Questions: 1. How would you...

Jamie Wong is considering building an investment portfolio containing two stocks, L and M. Stock L...

Jamie Wong is considering building an investment portfolio containing two stocks, L and M. Stock L will represent 20 % of the dollar value of the portfolio, and stock M will account for the other 80 %. The expected returns over the next 6 years, 2015minus 2020, for each of these stocks are shown in the following table: Expected return Year Stock L Stock M 2015 14 % 25 % 2016 15 % 24 % 2017 16 % 23 %...

Emma and Robert are discussing an investment opportunity about the stock XYZ. The stock has a...

Emma and Robert are discussing an investment opportunity about the stock XYZ. The stock has a current price of €100 and the forward price for delivery of this stock in 1 year is €110. The annual effective risk-free interest rate is 5%. This stock currently pays no dividends. Read the following discussions about the contract. Do you support them or not? Justify your answers. i. Emma argues that investing in XYZ stock versus investing in the forward contract does not...

Company XYZ has a target capital structure of 30% equity and 70% debt. Its cost of...

Company XYZ has a target capital structure of 30% equity and 70% debt. Its cost of equity is 10%, and cost of debt is 5%. What would happen to XYZ’s WACC if its capital structure were to shift to 40% equity and 60% debt? wacc increases decreases or stays constant? and why

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