Question
In: Finance
On Monday January 17, 2017 an investor wanted to invest $1,000,000 in two stocks Verizon (VZ)...
On Monday January 17, 2017 an investor wanted to invest $1,000,000 in two stocks Verizon (VZ) and ATT (T). Using historical adjusted weekly closes from January 2, 2016 to January 15, 2017.
a) FInd the proportions of the portfolio with minmal risk
b) As of June 23, 2017, find the market value of this portfolio and deduce the rate of return of this investment.
Solutions
Expert Solution
Answer ) The concept of portfolio :
Expected return = W1 * return 1 + W2* return 2
p2
= W12*
12 + W22*
22 + 2 *W1 W2 *
1*
2 r12
DATA as per instruction
| Date | VZ | Return(VZ) | T | Return(T) | |||
| 1/1/2016 | 40.33802 | 29.55258 | Average Return(VZ) | 0.4030% | |||
| 1/8/2016 | 40.47338 | 0.3355% | 30.67496 | 3.7979% | Average Return(T) | 0.5091% | |
| 1/15/2016 | 41.37539 | 2.2287% | 30.8896 | 0.6997% | |||
| 1/22/2016 | 44.20771 | 6.8454% | 31.77497 | 2.8662% | Standard deviation (VZ) | 0.022549 | |
| 1/29/2016 | 45.48858 | 2.8974% | 32.66928 | 2.8145% | Standard deviation (T) | 0.021593 | |
| 2/5/2016 | 44.55048 | -2.0623% | 32.3831 | -0.8760% | |||
| 2/12/2016 | 45.9486 | 3.1383% | 33.08067 | 2.1541% | Correlation | 0.769933 | |
| 2/19/2016 | 46.10195 | 0.3337% | 33.4205 | 1.0273% | |||
| 2/26/2016 | 46.80551 | 1.5261% | 33.97498 | 1.6591% | |||
| 3/4/2016 | 47.19338 | 0.8287% | 34.26116 | 0.8423% | |||
| 3/11/2016 | 48.37502 | 2.5038% | 34.98555 | 2.1143% | |||
| 3/18/2016 | 48.31188 | -0.1305% | 34.77092 | -0.6135% | |||
| 3/25/2016 | 48.78093 | 0.9709% | 35.03027 | 0.7459% | |||
| 4/1/2016 | 46.90473 | -3.8462% | 34.51157 | -1.4807% | |||
| 4/8/2016 | 46.81646 | -0.1882% | 34.78559 | 0.7940% | |||
| 4/15/2016 | 45.60413 | -2.5895% | 34.27856 | -1.4576% | |||
| 4/22/2016 | 46.50655 | 1.9788% | 34.98478 | 2.0602% | |||
| 4/29/2016 | 46.34247 | -0.3528% | 35.07532 | 0.2588% | |||
| 5/6/2016 | 46.91674 | 1.2392% | 35.80869 | 2.0909% | |||
| 5/13/2016 | 45.23951 | -3.5749% | 34.8037 | -2.8066% | |||
| 5/20/2016 | 45.72263 | 1.0679% | 35.16586 | 1.0406% | |||
| 5/27/2016 | 46.27866 | 1.2161% | 35.16586 | 0.0000% | |||
| 6/3/2016 | 47.35428 | 2.3242% | 36.29761 | 3.2183% | |||
| 6/10/2016 | 48.7307 | 2.9066% | 36.65978 | 0.9978% | |||
| 6/17/2016 | 49.83365 | 2.2634% | 37.91828 | 3.4329% | |||
| 6/24/2016 | 50.90014 | 2.1401% | 39.12247 | 3.1757% | |||
| 7/1/2016 | 50.48084 | -0.8238% | 38.29855 | -2.1060% | |||
| 7/8/2016 | 51.41402 | 1.8486% | 39.15767 | 2.2432% | |||
| 7/15/2016 | 50.98127 | -0.8417% | 38.92879 | -0.5845% | |||
| 7/22/2016 | 50.51169 | -0.9211% | 38.98372 | 0.1411% | |||
| 7/29/2016 | 49.65541 | -1.6952% | 39.44149 | 1.1743% | |||
| 8/5/2016 | 49.59095 | -0.1298% | 39.7253 | 0.7196% | |||
| 8/12/2016 | 48.67942 | -1.8381% | 37.90338 | -4.5863% | |||
| 8/19/2016 | 48.56894 | -0.2270% | 37.60125 | -0.7971% | |||
| 8/26/2016 | 48.39399 | -0.3602% | 37.50054 | -0.2679% | |||
| 9/2/2016 | 49.35156 | 1.9787% | 37.71112 | 0.5615% | |||
| 9/9/2016 | 47.85996 | -3.0224% | 37.03362 | -1.7965% | |||
| 9/16/2016 | 48.20063 | 0.7118% | 37.63787 | 1.6316% | |||
| 9/23/2016 | 47.98887 | -0.4393% | 37.28997 | -0.9243% | |||
| 9/30/2016 | 46.27629 | -3.5687% | 35.80679 | -3.9774% | |||
| 10/7/2016 | 46.83153 | 1.1998% | 36.48373 | 1.8905% | |||
| 10/14/2016 | 45.76061 | -2.2868% | 35.81653 | -1.8288% | |||
| 10/21/2016 | 45.20188 | -1.2210% | 33.84267 | -5.5110% | |||
| 10/28/2016 | 43.64672 | -3.4405% | 33.94461 | 0.3012% | |||
| 11/4/2016 | 43.4791 | -0.3840% | 33.889 | -0.1638% | |||
| 11/11/2016 | 44.55001 | 2.4631% | 34.66742 | 2.2970% | |||
| 11/18/2016 | 46.77565 | 4.9958% | 35.89065 | 3.5285% | |||
| 11/25/2016 | 46.44041 | -0.7167% | 36.02966 | 0.3873% | |||
| 12/2/2016 | 47.61376 | 2.5266% | 37.44749 | 3.9352% | |||
| 12/9/2016 | 48.247 | 1.3299% | 38.45758 | 2.6974% | |||
| 12/16/2016 | 49.96046 | 3.5514% | 39.58814 | 2.9398% | |||
| 12/23/2016 | 50.04427 | 0.1678% | 39.53254 | -0.1405% | |||
| 12/30/2016 | 50.88237 | 1.6747% | 39.52328 | -0.0234% | |||
| 1/6/2017 | 49.05717 | -3.5871% | 38.0035 | -3.8453% | |||
| 1/13/2017 | 49.45884 | 0.8188% | 38.39832 | 1.0389% |
With the concept of above metioned portfolio concept , the minimumvariance portfolio will formed as
| Portfolio combination | |||
| Case | Portion in VZ | Portion in T | Standard Deviation |
| 1 | 0.1 | 0.9 | 0.0176 |
| 2 | 0.2 | 0.8 | 0.0140 |
| 3 | 0.3 | 0.7 | 0.0108 |
| 4 | 0.4 | 0.6 | 0.0080 |
| 5 | 0.5 | 0.5 | 0.0057 |
| 6 | 0.6 | 0.4 | 0.0038 |
| 7 | 0.7 | 0.3 | 0.0023 |
| 8 | 0.8 | 0.2 | 0.0013 |
| 9 | 0.9 | 0.1 | 0.0007 |
| 10 | 1 | 0 | 0.0005 |
Clearly indicate that case 10 , maximum portion of investment in VZ will lead to minimum risk .
So, all investment is done on 17 jan 2017 in VZ shares at price of $ 49.46 /shares
No of shares = $1,000,000 / $ 49.46 = 20218.35 = 20218 shares
Answer b) As on 23 june 2017 , price of VZ share =$43.26
Value of portfolio = 20218 * $ 43.26 =$ 874630.68
Return = $ 874630.68 - $1,000,000 = -$125369
Return % = -12.54 %
jeff jeffy answered 1 year agoRelated Solutions
28. A potential investor is seeking to invest $1,000,000 in a venture, which currently has 1,000,000...
28. A potential investor is seeking to invest $1,000,000 in a
venture, which currently has 1,000,000 shares held by its founders,
and is targeting a 40% return five years from now. The venture is
expected to produce half a million dollars in income per year at
year 5. It is known that a similar venture recently produced
$1,000,000 in income and sold shares to the public for
$20,000,000.
What is the percent ownership of our venture that must be sold...
January 15, 2017 January 16, 2017 January 17, 2017 January 18, 2017 January 19, 2017 January...
January 15, 2017
January 16, 2017
January 17, 2017
January 18, 2017
January 19, 2017
January 20, 2017
January 21, 2017
Person 1
32
56
92
76
72
32
72
Person 2
40
0
20
4
20
0
0
Person 3
30
5
10
15
15
20
25
Person 4
47
35
71
13
17
29
42
Person 5
10
15
15
15
15
15
25
Person 6
0
0
0
10
5
5
0
Person 7
0
12
2...
A potential investor is seeking to invest $750,000 in a venture, which currently has 1,000,000 shares...
A potential investor is seeking to invest $750,000 in a venture,
which currently has 1,000,000 shares held by its founders, and is
targeting a 45% per annum return for the next five years. The
venture is expected to produce $1,000,000 in income per year at
year 5. It is known that a similar venture recently produced
$2,000,000 in income and sold shares to the public for
$15,000,000.
a. What is the percent ownership of our venture that must be
sold...
Here are the returns on two stocks. Digital Cheese Executive Fruit January +17 +7 February −3...
Here are the returns on two stocks.
Digital Cheese
Executive Fruit
January
+17
+7
February
−3
+2
March
+5
+4
April
+7
+15
May
−4
+3
June
+3
+5
July
−2
−3
August
−8
−2
Required:
a-1. Calculate the variance and standard deviation of each
stock.
a-2. Which stock is riskier if held on its own?
b. Now calculate the returns in each month of a portfolio that
invests an equal amount each month in the two stocks.
c. Is...
An investor is considering the following three stocks to invest. Suppose that the current T-bill rate...
An investor is considering the following three stocks to invest.
Suppose that the current T-bill rate is 5% and the market rate of
return is 13%
Stock A
Stock B
Stock C
Beta
1.3
1.0
0.7
Which of the following statements is FALSE based on CAPM?
a) None of the alternatives is false.
b) If the investor puts equal amount of money in each of the
three stocks, he/she is expected to earn 13% from the
portfolio.
c) The current...
Let's say that you are looking to invest in two stocks A and B. Stock A...
Let's say that you are looking to invest in two stocks A and B.
Stock A has a beta of 1.19 and based on your best estimates is
expected to have a return of 13%. Stock B has a beta of 1.61 and is
expected to earn 7%. If the risk-free rate is currently 2% and the
expected return on the market is 12%, which stock(s) should you
invest in, if any?
Work by hand no financial calculator
You are faced with opportunity to invest in one of two stocks. Stock A is currently...
You are faced with opportunity to invest in one of two stocks.
Stock A is currently selling for $35 and Stock B is currently
selling for $25. You have the following information about these
companies:
- Stock A just paid a dividend of $1.20 and expects to grow at
10% for 5 years and at 5% after that in perpetuity. It has a
required return of 9%
- Stock B is a more well-established company and as such it is...
An investor can design a risky portfolio based on two stocks, A and B. Stock A...
An investor can design a risky portfolio based on two stocks, A
and B. Stock A has an expected return of 24% and a standard
deviation of return of 31%. Stock B has an expected return of 17%
and a standard deviation of return of 26%. The correlation
coefficient between the returns of A and B is .5. The risk-free
rate of return is 6%. The proportion of the optimal risky portfolio
that should be invested in stock B is...
An investor can design a risky portfolio based on two stocks, A and B. Stock A...
An investor can design a risky portfolio based on two stocks, A
and B. Stock A has an expected return of 24% and a standard
deviation of return of 35%. Stock B has an expected return of 13%
and a standard deviation of return of 20%. The correlation
coefficient between the returns of A and B is .5. The risk-free
rate of return is 6%. The proportion of the optimal risky portfolio
that should be invested in stock B is...
An investor can design a risky portfolio based on two stocks, A and B. Stock A...
An investor can design a risky portfolio based on two stocks, A
and B. Stock A has an expected return of 26% and a standard
deviation of return of 39%. Stock B has an expected return of 15%
and a standard deviation of return of 25%. The correlation
coefficient between the returns of A and B is .5. The risk-free
rate of return is 6%. The proportion of the optimal risky portfolio
that should be invested in stock B is...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Q. Explain the similarities and differences between job-order cost and process cost systems. Q. Differentiate between...
- Write one page (typed, double-spaced) in reply to the following: Imagine a moral theory, "John's Theory,"...
- For the best terms on a loan or credit card, you need a credit score above...
- Discuss age-related changes that occur in the remainder of the axial skeleton
- 1. Which of the following statements about evolution and ecology is TRUE? Evolutionary processes and ecological...
- follow the questions based on ABC or D Thank YOU . 1.With respect to the five...
- A dad pushes tangentially on a small hand-driven merry-go-round and is able to accelerate it from...
ADVERTISEMENT