Question
In: Finance
Nancy is trying to create a portfolio of two stocks that would move with the overall...
Nancy is trying to create a portfolio of two stocks that would move with the overall market. The four stocks and their correponding Betas are as follows:
Apple: Beta: 1.17
AT&T: .67
Salesforce: 1.35
Con Edison: .24
Of the two stocks portfolios listed below, which choice portfolio would move closely with the overall market?
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Portfolio of Salesforce & AT&T |
||
|
Portfolio of AT&T and Con Edison |
||
|
Portfolio of Salesforce & Con Edison |
||
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Portfolio of Salesforce and Apple |
Solutions
Expert Solution
a. Beta of 4 stocks are given and a portfolio of 2 stocks to be created which would move closely with the overall market.
b. We will have a possible combination of 6 portfolios as given below.
c. Since the investment proportion of each stock in portfolio is not provided, we assume equal weightage (50% and 50%)
d. To move closely with the overall market, beta of the portfolio have to be 1 or closer to 1.
e. The beta of the portfolio is the weighted average of the individual stock betas.
The beta of Salesforce & AT&T is 1.01 which is the closest to 1. Thus this portfolio will move closely with the overall market.
Thus the answer is Portfolio of Salesforce & AT&T
jeff jeffy answered 1 year agoRelated Solutions
Create a portfolio using the four stocks and information below:
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Create a portfolio using the two stocks and information below: Expected Return Standard Deviation Weight in...
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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)?
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Create a portfolio using the two stocks and information below: Expected Return Standard Deviation Weight in...
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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
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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...
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below:
Expected Return
Standard Deviation
Weight in Portfolio
Stock A
8.00%
11.00%
42.00%
Stock B
9.00%
32.00%
58.00%
----------------------
----------------------
----------------------
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Correlation (A,B)
0.1300
----------------------
----------------------
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Ex. x.xxxx)
What is the variance of A?
What is the variance of B?
What is the Correlation (A,A)?
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Create a portfolio using the two stocks and information below: Expected Return Standard Deviation Weight in...
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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
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