You are given the following three stocks and you have been asked to propose a portfolio...

You are given the following three stocks and you have been asked to propose a portfolio for a wealthy client. The client wants either a 2 asset (A-B, B-C, or A-C) or a 3 asset(A-B-C) portfolio. In any case, the portfolios must be equal weighted. Which of the four portfolios do you suggest to the client? Why?

Show your work step by step.

Stocks	Mean Return	Std of Return
X	1.5	4
Y	4	8
Z	7	1

Correlations
X and Y	X and Z	Z and Y
0.5	0.2	0.7

Solutions

Expert Solution

Mean return on a 2-asset portfolio =

Standard deviation of a 2-asset portfolio=

Mean return on a 3-asset portfolio =

Standard deviation of a 3-asset portfolio =

We select a portfolio with the lowest Coefficient of variation = Standard deviation/ Mean return

Portfolio of A and B

Portfolio of A and C

Portfolio of B and C

Portfolio of A,B,C

Here, we observe that the portfolio consisting of A,B,and C has the lowest coefficient of variation and the same must be suggested to the client The coefficient of variation choses the best risk-reward portfolio.

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

You are given the following three stocks and you have been asked to propose a portfolio...

You are given the following three stocks and you have been asked to propose a portfolio for a wealthy client. The client wants either a 2 asset (A-B, B-C, or A-C) or a 3 asset(A-B-C) portfolio. In any case, the portfolios must be equal weighted. Which of the four portfolios do you suggest to the client? Why? Show your work step by step. Stocks Mean Return Std of Return X 1.5 4 Y 4 8 Z 7 1 Correlations X...

You have been asked for your advice in selecting a portfolio of assets and have been...

You have been asked for your advice in selecting a portfolio of assets and have been supplied with the following data:. You have been told that you can create two portfolios—one consisting of assets A and B and the other consisting of assets A and C—by investing equal proportions (50%) in each of the two component assets. f. What would happen if you constructed a portfolio consisting of assets A, B, and C, equally weighted? Would this reduce risk or...

You have been asked for your advice in selecting a portfolio of assets and have been...

You have been asked for your advice in selecting a portfolio of assets and have been given the following data: Expected return Year Asset A Asset B Assets C 2016 12% 16% 12% 2017 14 14 14 2018 16 12 16 You have been told that you can create two portfolios, one consisting of assets A and B and other consisting of assets A and C, by investing equal proportions (50%) in each of the two component assets. (a) What...

You have been asked for your advice in selecting a portfolio of assets and have been...

You have been asked for your advice in selecting a portfolio of assets and have been given the following data: Expected return Year Asset A Assest B Assest C 2019 12% 16% 12% 2020 14% 14% 14% 2021 16% 12% 16% You have been told that you can create two portfolios—one consisting of assets A and B and the other consisting of assets A and C—by investing equal proportions (50%) in each of the two component assets. a. What is...

For your portfolio project, you have been asked to prepare a portfolio of materials for your...

For your portfolio project, you have been asked to prepare a portfolio of materials for your boss relating to a controversial topic in your current field of study, the topic of which you chose in the Topic Discussion. My topic is why getting vaccinated is important For this assignment, you will prepare a Letter of Transmittal that will be included in your final portfolio. Use the information from this lesson to help you format this letter, which should be one...

Portfolio analysis You have been given the return data shown in the first table on three...

Portfolio analysis You have been given the return data shown in the first table on three assets—F, G, and H—over the period 2010–2013. Expected return Year Asset F Asset G Asset H 2010 16% 17% 14% 2011 17% 16% 15% 2012 18% 15% 16% 2013 19% 14% 17% Using these assets, you have isolated the three investment alternatives shown in the following table: Alternative Investment 1 100% of asset F 2 50% of asset F and 50% of asset G...

You have been asked to propose a specific revision of U.S. anti-dumping policy, to make it...

You have been asked to propose a specific revision of U.S. anti-dumping policy, to make it more likely to contribute to U.S. well-being. What will you propose? 250 words please

You are given the following information about the stocks in a two-stock portfolio:

You are given the following information about the stocks in a two-stock portfolio: Stock Return Portfolio Weight Standard Deviation The Blue Hotel, Inc. 22% 45% 9% Joys Food, Inc. 25% 55% 11% Correlation coefficient between the two stocks is 0.5. Using the information above, calculate the following: The expected return of the portfolio, The variance of the portfolio, The standard deviation of the portfolio. （All calculations must be shown for intermediate calculations）

You are an analyst in charge of valuing common stocks. You have been asked to value...

You are an analyst in charge of valuing common stocks. You have been asked to value two stocks. The first stock AB Inc. just paid a dividend of $12.00. The dividend is expected to increase by 40%, 35%, 25%, 20% and 10% per year respectively in the next five years. Thereafter the dividend will increase by 5% per year in perpetuity. The second stock is CD Inc. CD will pay its first dividend of $15.00 per share in 5 years....

Consider the following information on a portfolio of three stocks: &

Consider the following information on a portfolio of three stocks: Rate of Return State of Economy Probability of State Occurring Stock A (%) Stock B (%) Stock C (%) Boom .15 7 15 28 Normal .70 9 12 17 Bust .15 10 2 −35 The portfolio is invested 40 percent in each of Stock A and Stock B and the rest in Stock C. Which of the three stocks has the lowest risk? Why? What is the expected return...

Subjects