Question

In: Accounting

You estimate that the expected return of MSFT stock is 4%, and standard deviation of MSFT stock is 9%.The expected return of AAPL stock is 3%,and

You estimate that the expected return of MSFT stock is 4%, and standard deviation of MSFT stock is 9%.The expected return of AAPL stock is 3%,and standard deviation of MSFT stock is8%. If the correlation between AAP Lreturns and MSFT returns is 80%,what is the expected return and standard deviation of a portfolio with $4,000 invested in MSFT and $6,000 invested in AAPL?

Expert Solution

Weight of MSFT = W1

= 4000/(4000+6000)

= 40%

Weight of AAPL= W2

= 6000/(4000+6000)

= 60%

Expected return = Return1*W1+ Return2*W2

= 4%*40%+3%*60%

= 3.4%

SD of portfolio = SQRT(W1^2 *SD1^2 + W2^2*SD2^2+ 2*W1*W2*SD1*SD2*CorrAB )

= SQRT(0.4^2*0.09^2+0.6^2* 0.08^2+ 2*0.4*0.6*0.09*0.08*0.8)

= SQRT(0.0063648)

= 0.07977969667

= 7.98%

Weight of MSFT = 40%

Weight of AAPL= 60%

Expected return = 3.4%

SD of portfolio = 7.98%

Junaid answered 2 years ago

expected return and standard deviation of a bond fund b is 4% and 9%, respectively. The...

expected return and standard deviation of a bond fund b is 4% and 9%, respectively. The expected return and standard deviation of a stock fund s is 12% and 25%, respectively. The correlation between two fund returns is 0.1. What is the standard deviation of a portfolio that invests 40% in s and the rest in b?

Stock Xillow has an expected return of 16% and a standard deviation of 4%. Stock Yash...

Stock Xillow has an expected return of 16% and a standard deviation of 4%. Stock Yash has an expected return of 12% and a standard deviation of 3%. Assume you have constructed a portfolio consisting of 75% weight in Stock Xillow and 25% in Stock Yash. Furthermore assume that the stocks have a correlation coefficient of -0.3. What is the standard deviation of the portfolio? A. Less than 2% B. Greater than or equal to 2% and less than 2.5%...

Stock X has an expected return of 11% and the standard deviation of the expected return...

Stock X has an expected return of 11% and the standard deviation of the expected return is 12%. Stock Z has an expected return of 9% and the standard deviation of the expected return is 18%. The correlation between the returns of the two stocks is +0.2. These are the only two stocks in a hypothetical world. A.What is the expected return and the standard deviation of a portfolio consisting of 90% Stock X and 10% Stock Z? Will any...

What are the expected return and standard deviation of stock A and stock B?

Consider the following information: State Probability A B Boom 0.6 20% -5% Bust 0.4 -10% 10%What are the expected return and standard deviation of stock A and stock B?If you invest 50% of your money in stock A and 50% of your money in stock B, what are the expected return and standard deviation for the portfolio as a whole (considering both states of the economy)?Use the results...

The expected rate of return for Stock A is? The investment's standard deviation for stock A?...

The expected rate of return for Stock A is? The investment's standard deviation for stock A? COMMON STOCK A COMMON STOCK B PROBABILITY RETURN PROBABILITY RETURN 0.20 11% 0.10 -4% 0.60 16% 0.40 7% 0.20 19% 0.40 14% 0.10 22%

The expected return on stock W is 10% and its standard deviation is 15%. Expected return...

The expected return on stock W is 10% and its standard deviation is 15%. Expected return on stock V is 16% and its standard deviation is 24%. The correlation between returns of W and V is 20%. calculate expected return and standard deviation of a portfolio that invests 40% in W and 60% in V. determine the minimum variance combination of W and V and determine its expected return and standard deviation. If the risk-free rate is 4%, determine the...

What are the expected return and the standard deviation for the CoR Stock? CoR Stock...

What are the expected return and the standard deviation for the CoR Stock? CoR Stock Scenario Probability of Scenario Rate of Return Worst Case 0.10 −11% Poor Case 0.20 −4% Most Likely 0.40 −2% Good Case 0.20 8% Best Case 0.10 14%

Stock A has an expected return of 16% and a standard deviation of 30%.

Stock A has an expected return of 16% and a standard deviation of 30%. Stock B has an expected return of 14% and a standard deviation of 13%. The risk-free rate is 4.7% and the correlation between Stock A and Stock B is 0.9. Build the optimal risky portfolio of Stock A and Stock B. What is the expected return on this portfolio?

What are the expected return and the standard deviation for the CoR Stock? &nb

What are the expected return and the standard deviation for the CoR Stock? CoR Stock Scenario Probability of Scenario Rate of Return Worst Case 0.10 −11% Poor Case 0.20 −4% Most Likely 0.40 −2% Good Case 0.20 8% Best Case 0.10 14% Your client decides to invest $1.4 million in Flama stock and $0.6 million in Blanca stock. The risk-free rate is 4% and the market risk premium is 5%. The beta of the Flama Stock is 1.2; and...

Expected Return Standard Deviation Stock fund (S) 20% &nbsp

Expected Return Standard Deviation Stock fund (S) 20% 30% Bond fund (B) 12% 15% Correlation = .10 7. If you were to use only the two risky funds, and still require an expected return of 14%, what would be the investment proportions of your portfolio? Compare its standard deviation to that of the optimized portfolio in Problem 9. What do you conclude? Problem 9 Stock Expected Return Standard Deviation A 10% 5% B...