Question
In: Finance
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 risk reduced at these weights relative to the risk of the individual assets? Why?
Solutions
jeff jeffy answered 1 year agoRelated Solutions
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 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...
What is the expected return on an equally weighted portfolio of these three stocks?
Consider the following
information:
Rate of Return if State Occurs
State of Economy
Probability
of
State of Economy
Stock A
Stock B
Stock C
Boom
0.74
0.23
0.25
0.17
Bust
0.26
0.11
0.15
0.11
Requirement
1:
What is the expected return on an equally weighted portfolio of
these three stocks? (Do not round your intermediate
calculations.)
(Click to select)19.24%21.74%31.27%34.04%13.51%
Requirement
2:
What is the variance of a portfolio invested 10 percent each in
A and B and 80 percent in...
Create a portfolio using the two stocks and information below: Expected Return Standard Deviation Weight in...
Create a portfolio using the two stocks and information
below:
Expected Return
Standard Deviation
Weight in Portfolio
Stock A
34.00%
19.00%
90.00%
Stock B
9.00%
38.00%
10.00%
----------------------
----------------------
----------------------
----------------------
Correlation (A,B)
0.1500
----------------------
----------------------
(Do not round intermediate calculations. Record your
answers in decimal form and round your answers to 4 decimal places.
Ex. x.xxxx)
What is the variance of A?
What is the variance of B?
What is the Correlation (A,A)?
What is the Correlation (B,B)?
What...
Create a portfolio using the two stocks and information below: Expected Return Standard Deviation Weight in...
Create a portfolio using the two stocks and information
below:
Expected Return
Standard Deviation
Weight in Portfolio
Stock A
33.00%
14.00%
81.00%
Stock B
24.00%
25.00%
19.00%
----------------------
----------------------
----------------------
----------------------
Correlation (A,B)
0.9600
----------------------
----------------------
(Do not round intermediate calculations. Record your
answers in decimal form and round your answers to 4 decimal places.
Ex. x.xxxx)
What is the variance of A?
What is the variance of B?
What is the Correlation (A,A)?
What is the Correlation (B,B)?
What...
Create a portfolio using the two stocks and information below: Expected Return Standard Deviation Weight in...
Create a portfolio using the two stocks and information
below:
Expected Return
Standard Deviation
Weight in Portfolio
Stock A
35.00%
11.00%
78.00%
Stock B
26.00%
30.00%
22.00%
----------------------
----------------------
----------------------
----------------------
Correlation (A,B)
0.8900
----------------------
----------------------
(Do not round intermediate calculations. Record your
answers in decimal form and round your answers to 4 decimal places.
Ex. x.xxxx)
What is the variance of A?
What is the variance of B?
What is the Correlation (A,A)?
What is the Correlation (B,B)?
What...
Create a portfolio using the two stocks and information below: Expected Return Standard Deviation Weight in...
Create a portfolio using the two stocks and information
below:
Expected Return
Standard Deviation
Weight in Portfolio
Stock A
8.00%
11.00%
42.00%
Stock B
9.00%
32.00%
58.00%
----------------------
----------------------
----------------------
----------------------
Correlation (A,B)
0.1300
----------------------
----------------------
(Do not round intermediate calculations. Record your
answers in decimal form and round your answers to 4 decimal places.
Ex. x.xxxx)
What is the variance of A?
What is the variance of B?
What is the Correlation (A,A)?
What is the Correlation (B,B)?
What...
Create a portfolio using the two stocks and information below: Expected Return Standard Deviation Weight in...
Create a portfolio using the two stocks and information
below:
Expected Return
Standard Deviation
Weight in Portfolio
Stock A
21.00%
28.00%
19.00%
Stock B
23.00%
10.00%
81.00%
----------------------
----------------------
----------------------
----------------------
Correlation (A,B)
0.0500
----------------------
---------------------
(Do not round intermediate calculations. Record your
answers in decimal form and round your answers to 4 decimal places.
Ex. x.xxxx)
What is the Correlation (A,A)?
What is the Correlation (B,B)?
What is the Covariance (A,A)?
What is the Covariance (A,B)?
What is the...
Problem 9-9 Consider the following table, which gives a security analyst’s expected return on two stocks...
Problem 9-9
Consider the following table, which gives a security analyst’s
expected return on two stocks in two particular scenarios for the
rate of return on the market:
Market Return
Aggressive Stock
Defensive Stock
5
%
–3
%
3
%
27
34
11
a. What are the betas of the two stocks?
(Do not round intermediate calculations. Round your answers
to 2 decimal places.)
b. What is the expected rate of return on each
stock if the two scenarios for...
You are the manager of a portfolio of risky securities. Your portfolio has an expected return...
You are the manager of a portfolio of risky securities. Your
portfolio has an expected return (E(rP)) of 12% and a standard
deviation (P) of 18%. The risk free rate (rf) is 6%. The following
two clients want to invest some portions of their investment budget
in your portfolio and the balance in the risk free asset: Client 1
needs an expected return of 10% from her complete portfolio. Client
2 needs a complete portfolio with a standard deviation of...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- explain the relationship between the SEC and the various private sector standard setting bodies that have,...
- You have been asked to prepare a December cash budget for Ashton Company, a distributor of...
- Holly bought a 7-year bond, with a 3% coupon paid semi annually. It was priced to...
- METAR Abbreviations METAR (Meteorological Aviation Report) is a format for reporting weather information, either for pilots...
- The data below are the heights of fathers and sons (inches). There are 8 rows in...
- Without quantization procedure how much of actual information is lost during analog to digital conversion process??...
- 11. Suppose that a 32M × 16 memory built using 512K × 8 RAM chips and...
ADVERTISEMENT