Question
In: Accounting
The following data relates to the returns of three stocks. Mean return &nb
The following data relates to the returns of three stocks.
Mean return Std deviation of returns
A: 0.05 0.093
B: 0.35 0.070
C: 0.045 0.085
The pairwise correlation coefficients between the returns of these three stocks are:
A and B = .137, A and C = .476, B and C = .422
Compute the returns and variances of equally weighted portfolios of the following stocks.
(a) A and B
(b) A, B and C
Show your workings. Comment on the results you got for (a) and (b) from the standpoint of risk diversification.
Solutions
ekkarill92 answered 1 year agoRelated Solutions
You are given the returns for the following three stocks: Return Year Stock A Stock B...
You are given the returns for the following three stocks:
Return
Year
Stock A
Stock B
Stock C
1
8%
7%
-22%
2
8%
15%
35%
3
8%
3%
15%
4
8%
12%
3%
5
8%
3%
9%
Calculate the arithmetic return,
geometric return, and standard deviation for each stock. Do you
notice anything about the relationship between an asset’s
arithmetic return, standard deviation, and geometric return? Do you
think this relationship will always hold?
Stocks A and B have the following? returns: Stock A Stock B 1 0.11 &nb
Stocks A and B have the following? returns:
Stock
A Stock B
1 0.11
0.05
2
0.06
0.02
3
0.15 0.05
4
-0.04
0.02
5
0.08
-0.04
a. What are the expected returns of ?stock A and Stock B?
b. What are the standard deviations of the returns of stock A
and stock B?
c. If their correlation is 0.43?, what is the expected return
and standard deviation of a portfolio of 55?% stock A and 45?%
stock? B?
Consider the following information for three stocks, Stocks A, B, and C. The returns on the...
Consider the following information for three stocks, Stocks A,
B, and C. The returns on the three stocks are positively
correlated, but they are not perfectly correlated. (That is, each
of the correlation coefficients is between 0 and 1.)
Stock
Expected Return
Standard Deviation
Beta
A
7.94
16
0.7
B
9.62
16
1.1
C
11.72
16
1.6
Fund P has one-third of its funds invested in each of the three
stocks. The risk-free rate is 5%, and the market is...
Consider the following information for Stocks A, B, and C. The returns on the three stocks...
Consider the following information for Stocks A, B, and C. The
returns on the three stocks are positively correlated, but they are
not perfectly correlated. (that is, each of the correlation
coefficients is between 0 and 1).
Stock Expected Return Standard Deviation Beta
A 9.55% 15.00% 0.9
B 10.45% 15.00% 1.1
C 12.70% 15.00% 1.6
Fund P has one-third of its funds invested in each of the
three stocks. The risk-free rate is 5.5%, and the market is in
equilibrium....
Consider the following information for stocks A, B, and C. The returns on the three stocks...
Consider the following information for stocks A, B, and C. The
returns on the three stocks are positively correlated, but they are
not perfectly correlated. (That is, each of the correlation
coefficients is between 0 and 1.)
Stock
Expected Return
Standard Deviation
Beta
A
9.35%
15%
0.7
B
12.65
15
1.3
C
14.85
15
1.7
Fund P has one-third of its funds invested in each of the three
stocks. The risk-free rate is 5.5%, and the market is in
equilibrium....
Consider the following information for stocks A, B, and C. The returns on the three stocks...
Consider the following information for stocks A, B, and C. The
returns on the three stocks are positively correlated, but they are
not perfectly correlated. (That is, each of the correlation
coefficients is between 0 and 1.)
Stock
Expected Return
Standard Deviation
Beta
A
8.65%
16%
0.7
B
10.45
16
1.1
C
12.25
16
1.5
Fund P has one-third of its funds invested in each of the three
stocks. The risk-free rate is 5.5%, and the market is in
equilibrium....
Consider the following information for stocks A, B, and C. The returns on the three stocks...
Consider the following information for stocks A, B, and C. The
returns on the three stocks are positively correlated, but they are
not perfectly correlated. (That is, each of the correlation
coefficients is between 0 and 1.)
Stock
Expected Return
Standard Deviation
Beta
A
8.75%
14%
0.9
B
9.75
14
1.3
C
10.75
14
1.7
Fund P has one-third of its funds invested in each of the three
stocks. The risk-free rate is 6.5%, and the market is in
equilibrium....
Consider the following information for three stocks, Stocks A, B, and C. The returns on the...
Consider the following information for three stocks, Stocks A,
B, and C. The returns on the three stocks are positively
correlated, but they are not perfectly correlated. (That is, each
of the correlation coefficients is between 0 and 1.)
Stock
Expected Return
Standard Deviation
Beta
A
9.34
%
14
%
0.8
B
11.26
14
1.2
C
13.18
14
1.6
Fund P has one-third of its funds invested in each of the three
stocks. The risk-free rate is 5.5%, and the...
Consider the following information for stocks A, B, and C. The returns on the three stocks...
Consider the following
information for stocks A, B, and C. The returns on the three stocks
are positively correlated, but they are not perfectly correlated.
(That is, each of the correlation coefficients is between 0 and
1.)
Stock
Expected
Return
Standard
Deviation
Beta
A
9.69%
14%
0.9
B
10.92
14
1.2
C
12.56
14
1.6
Fund P has one-third
of its funds invested in each of the three stocks. The risk-free
rate is 6%, and the market is in equilibrium....
Consider the following information for three stocks, Stocks A, B, and C. The returns on the...
Consider the following information for three stocks, Stocks A,
B, and C. The returns on the three stocks are positively
correlated, but they are not perfectly correlated. (That is, each
of the correlation coefficients is between 0 and 1.)
Stock Expected Return Standard Deviation Beta
A 8.01 % 15 % 0.7
B 10.16 15 1.2
C 11.88 15 1.6
Fund P has one-third of its funds invested in each of the three
stocks. The risk-free rate is 5%, and the...
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