Refer to the following table Construct an equal-weighted (50/50) portfolio of Investments A and B. What...

Refer to the following table
Construct an equal-weighted (50/50) portfolio of Investments A and B. What is the expected rate of
return and standard deviation of the portfolio? Explain your results.


State	Probability	A	B	AB
Very poor	0.1	-10%	-25%	-17.5%
Poor	0.2	0%	-5%	-2.5%
Average	0.4	10%	15%	12.5%
Good	0.2	20%	35%	27.5%
Very good	0.1	30%	55%	42.5%

Solutions

Expert Solution

Results:

Portfolio Expected Return = 12.50% Standard Deviation = 16.43%

Stock A Expected Return = 10% Standard Deviation = 10.93%

Stock B Expected Return = 15% Standard Deviation = 21.91%

By equally investing in stock A and stock B we are getting the expected return of 12.50% with just 16.43% of Standard deviation.

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

What is the return on a portfolio composed of the following 5 investments in equal amounts:...

What is the return on a portfolio composed of the following 5 investments in equal amounts: Investment A increased 5%, Investment B increased 12%, Investment C decreased 3%, Investment D increased 0.5% and investment E increased 7%.

1. You have a $30,000 portfolio that consists of equal dollar investments in stocks A, B,...

1. You have a $30,000 portfolio that consists of equal dollar investments in stocks A, B, and C, each with a current price of $25. After one year, stock A is worth $40, stock B is worth $30, and stock C is worth $12.50. You wish to rebalance the portfolio to maintain equal dollar investments in each stock. How many shares of each stock do you buy and/or sell to rebalance the portfolio? A common behavioral hypothesis is that investors...

What is the standard deviation and mean returns for an equal weighted portfolio that consists stocks...

What is the standard deviation and mean returns for an equal weighted portfolio that consists stocks X,Y,Z(equally weighted). Use the data given below. Stocks Mean Return Variance of Return X 2 2.25 Y 4 36 Z 6 4 Correlations X and Y X and Z Z and Y 0.5 0.2 0.9 2. A bond has a face value of $1000 with a time to maturity ten years from now. The yield to maturity of the bond now is 10%. What is...

The market risk of a portfolio is equal to the weighted average market risk of its...

The market risk of a portfolio is equal to the weighted average market risk of its components, and the total risk of a portfolio is equal to the weighted average total risk of its components. True or False? Please explain.

The market risk of a portfolio is equal to the weighted average market risk of its...

(b) If a portfolio has a beta equal to 1, it is an efficient portfolio and...

(b) If a portfolio has a beta equal to 1, it is an efficient portfolio and it sits on the CML. Is this statement true or false? Explain. (c) In practice, it is estimated that most unsystematic risk can be diversified away in a portfolio of 20 to 30 assets. Is this statement true or false? Explain. (d) Define idiosyncratic risk and systematic risk. Discuss their relationship with risk premium and beta.

Assume Nike is exposed to a currency portfolio weighted 50 percent in Canadian dollars and 50...

Assume Nike is exposed to a currency portfolio weighted 50 percent in Canadian dollars and 50 percent in Mexican pesos. Nike estimates the standard deviation of quarterly percentage changes to be 4 percent for the Canadian dollar and 6 percent for the Mexican peso. Also assume that Nike estimates a correlation coefficient of 0.2 between these two currencies. a) Calculate the portfolio’s standard deviation. b) Assuming i) normal distribution of the quarterly percentage changes of each currency (and so the...

You are considering the construction of a portfolio comprised of equal investments in each of four...

You are considering the construction of a portfolio comprised of equal investments in each of four different stocks. The betas for each stock are found? below: Asset Beta A 2.50 B 1.00 C 0.50 D ??????? ?1.50 a.??What is the portfolio beta for your proposed investment? portfolio? b.??How would a 25 percent increase in the expected return on the market impact the expected return of your? portfolio? c.??How would a 25 percent decrease in the expected return on the market...

The following are the expected returns on a portfolio of investments. What is the expected rate of return on the portfolio?

The following are the expected returns on a portfolio of investments. What is the expected rate of return on the portfolio? Investment # of shares Price per share Expected returnA. 2000 $20 10%B. 3000 $10 15%C. 1000 $15 8%

(Security market line) You are considering the construction of a portfolio comprised of equal investments in...

(Security market line) You are considering the construction of a portfolio comprised of equal investments in each of four different stocks. The betas for each stock are found below: Asset Beta A 2.40 B 0.95 C 0.55 D −1.40 a. What is the portfolio beta for your proposed investment portfolio? b. How would a 25 percent increase in the expected return on the market impact the expected return of your portfolio? c. How would a 25 percent decrease in the...

Subjects