Question
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Refer to the table below. 3 Doors, Inc. Down Co. Expected return, E (R) 14 %...
Refer to the table below. 3 Doors, Inc. Down Co. Expected return, E (R) 14 % 7.5 % Standard deviation, σ 26 17 Correlation .38 Using the information provided on the two stocks in the table above, find the expected return and standard deviation on the minimum variance portfolio. (Round your answer to 2 decimal places. Omit the "%" sign in your response.) Expected return % Standard deviation %
Solutions
Expert Solution
| To find the fraction of wealth to invest in 3 Doors that will result in the risky portfolio with minimum variance the following formula to determine the weight of 3 Doors in risky portfolio should be used |
| Where | ||
| 3 Doors | E[R(d)]= | 14.00% |
| Down co | E[R(e)]= | 7.50% |
| 3 Doors | Stdev[R(d)]= | 26.00% |
| Down co | Stdev[R(e)]= | 17.00% |
| Var[R(d)]= | 0.06760 | |
| Var[R(e)]= | 0.02890 | |
| T bill | Rf= | 12.00% |
| Correl | Corr(Re,Rd)= | 0.38 |
| Covar | Cov(Re,Rd)= | 0.0168 |
| 3 Doors | Therefore W(*d)= | 0.1924 |
| Down co | W(*e)=(1-W(*d))= | 0.8076 |
| Expected return of risky portfolio= | 8.75% | |
| Risky portfolio std dev= | 16.30% |
| Where | |||||
| Var = std dev^2 | |||||
| Covariance = Correlation* Std dev (r)*Std dev (d) | |||||
| Expected return of the risky portfolio = E[R(d)]*W(*d)+E[R(e)]*W(*e) | |||||
| Risky portfolio standard deviation =( w2A*σ2(RA)+w2B*σ2(RB)+2*(wA)*(wB)*Cor(RA,RB)*σ(RA)*σ(RB))^0.5 | |||||
jeff jeffy answered 1 year agoRelated Solutions
Refer to the table below: 3 Doors, Inc. Down Co. Expected return, E(R) 14 % 10...
Refer to the table below:
3
Doors, Inc.
Down Co.
Expected return, E(R)
14
%
10
%
Standard deviation, σ
42
31
Correlation
0.10
Using the information provided on the two stocks in the table
above, find the expected return and standard deviation on the
minimum variance portfolio. (Do not round intermediate
calculations. Enter your answers as a percent rounded to 2 decimal
places.)
Refer to the table below:
3
Doors, Inc.
Down Co.
Expected return, E(R)
14
%
10...
Refer to the table below: 3 Doors, Inc. Down Co. Expected return, E(R) 12 % 10%...
Refer to the table below:
3
Doors, Inc.
Down Co.
Expected return,
E(R)
12
%
10%
Standard deviation,
σ
41
29
Correlation
0.2
Using the information provided on the two stocks in the table
above, find the expected return on the minimum variance portfolio.
(Do not round intermediate calculations. Enter your answers
as a percent rounded to 2 decimal places.)
Refer to the table below: 3 Doors, Inc. Down Co. Expected return, E(R) 17 % 8...
Refer to the table below:
3 Doors, Inc.
Down Co.
Expected return, E(R)
17
%
8
%
Standard deviation, σ
32
20
Correlation
0.41
Using the information provided on the two stocks in the table
above, find the expected return and standard deviation on the
minimum variance portfolio. (Do not round intermediate
calculations. Enter your answers as a percent rounded to 2 decimal
places.)
Expected return
%
Standard deviation
%
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Refer to the table below:
3 Doors, Inc.
Down Co.
Expected return, E(R)
10
%
11
%
Standard deviation, σ
25
22
Correlation
0.20
Using the information provided on the two stocks in the table
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1-Month
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Sharpe
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3.38
8.34
20.36
0.41
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0.92
8.49
26.83
0.32
1950–1972
14.00
3.14
10.86
17.46
0.62
1973–1995
13.38
7.26
6.11
18.43
0.33
1996–2018
10.10
2.21
7.89
18.39
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