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Consider the following data for the companies Powergas and Supertech: Company Beta Standard Deviation Covariance      with...

Consider the following data for the companies Powergas and Supertech:

Company

Beta

Standard

Deviation

Covariance      with Market

Powergas

?

45%

0.0135

Supertech

1.6

40%

?

The expected return on the market index is 15% and the risk free rate of interest is 6%. The standard deviation of the market index is 15%. You can borrow and lend at the risk free rate.

What is the beta of Powergas and the covariance of Supertech with the market portfolio?

What are the correlations between Powergas and the market, and Supertech and the market?

How could you form a portfolio of Powergas and Supertech that has exactly the same expected rate of return as the market?

How could you form a portfolio of Powergas and Supertech that has a expected rate of return of 24%? What is the risk of this portfolio if the correlation between Powergas and Supertech is 0.5?

How could you form a portfolio that has the same expected return as the portfolio formed in part 2d, but lower standard deviation? What is the lowest risk you have to assume for this expected return?

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Expert Solution

jeff jeffy answered 1 year ago
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