You are forming a portfolio with two stocks. The first stock has an expected return of...

You are forming a portfolio with two stocks. The first stock has an expected return of 15% and a standard deviation of 20%. The second stock has an expected return of 10% and a standard deviation of 15%. The two stocks have a correlation of 0.5. If you want to form the portfolio by investing $1000 in the first stock and $3000 in the second stock, what is the expected return and standard deviation of the portfolio? Lastly, use the information provided (and your calculations) to show that diversification works.

Expert Solution

sc

jeff jeffy answered 2 years ago

You have a portfolio of three stocks: Stock A, Stock B, and Stock C. The expected return...

You have a portfolio of three stocks: Stock A, Stock B, and Stock C. The expected return of Stock A is 8%, the expected return of Stock B is 10%, and the expected return of Stock C is 12%. The expected return of the portfolios is 10.5%. If the weight of asset B is three times the weight of asset A, what are the weights for the three assets?

You currently Own a portfolio of two stocks. JH Chemical has an expected return of 11%...

You currently Own a portfolio of two stocks. JH Chemical has an expected return of 11% with a standard deviation of 15% while AAC Agriculture has an expected return of 15% with a standard deviation of 20%. The correlation coefficient between these two stocks is 0.30. A. If you invest $14,000 in JH and $6,000 in AAC, what is the expected return and standard deviation of the portfolio? Was risk reduced relative to the individual risk of each security? Why?...

You own a portfolio of two stocks. Red River Inc. has an expected return of 9%...

You own a portfolio of two stocks. Red River Inc. has an expected return of 9% and a standard deviation of 15% while Boston Harbor Co. has an expected return of 15% with a standard deviation of 19%. a. What percent of your portfolio must you invest in each stock if you wanted to earn a 12.4% return on the portfolio? (Hint: Consider W1+W2=1.0) b. If the correlation coefficient is 0.3, what is the standard deviation of this portfolio? Is...

You have a three-stock portfolio. Stock A has an expected return of 16 percent and a...

You have a three-stock portfolio. Stock A has an expected return of 16 percent and a standard deviation of 41 percent, Stock B has an expected return of 20 percent and a standard deviation of 46 percent, and Stock C has an expected return of 15 percent and a standard deviation of 46 percent. The correlation between Stocks A and B is .30, between Stocks A and C is .20, and between Stocks B and C is .05. Your portfolio...

You have a three-stock portfolio. Stock A has an expected return of 17 percent and a...

You have a three-stock portfolio. Stock A has an expected return of 17 percent and a standard deviation of 38 percent, Stock B has an expected return of 20 percent and a standard deviation of 56 percent, and Stock C has an expected return of 15 percent and a standard deviation of 38 percent. The correlation between Stocks A and B is 0.30, between Stocks A and C is 0.20, and between Stocks B and C is 0.05. Your portfolio...

You put half of your money in a stock portfolio that has an expected return of...

You put half of your money in a stock portfolio that has an expected return of 14% and a standard deviation of 23%. You put the rest of your money in a risky bond portfolio that has an expected return of 6% and a standard deviation of 11.3%. The stock and bond portfolios have a correlation of 0.42. What is the standard deviation of the resulting portfolio?

You put 60% of your money in a stock portfolio that has an expected return of...

You put 60% of your money in a stock portfolio that has an expected return of 14% and a standard deviation of 26%. You put the rest of your money in a risky bond portfolio that has an expected return of 6% and a standard deviation of 11%. The stock and bond portfolios have a correlation of 0.36. The standard deviation of the resulting portfolio is %. Please enter your answer with TWO decimal points.

You put 70% of your money in a stock portfolio that has an expected return of...

You put 70% of your money in a stock portfolio that has an expected return of 14.75% and a standard deviation of 28%. You put the rest of you money in a risky bond portfolio that has an expected return of 4.25% and a standard deviation of 15%. The stock and bond portfolio have a correlation 0.35. a. Assume the risk–free rate is 2.00%. What is the stock weight in the tangency portfolio formed by creating the optimal risky portfolio...

3. Assume you had two stocks. Stock A had an expected return of 20% and a...

3. Assume you had two stocks. Stock A had an expected return of 20% and a standard deviation of 25%. Stock B had an expected return of 15% and a standard deviation of 20%. You want to create a portfolio made up of 65% stock A and 35% stock B. Find the expected return and standard deviation of this portfolio under the following conditions 3a. Correlation between stock A and B is 1.0 3b. Correlation between stock A and B...

Expected return on two stocks for two particular market returns: Market Return Aggressive Stock Defensive Stock...

Expected return on two stocks for two particular market returns: Market Return Aggressive Stock Defensive Stock 2% -5% 3% 22% 35% 15% a. What are the betas of the two stocks? b. What is the expected rate of return on each stock if the market return is equally likely to be 2% or 22%? c. If the T-bill rate is 3% and the market return is equally likely to be 2% or 22%, draw the SML for this economy. d....

Question