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 2 years 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
%
Problem 11-14 Minimum Variance Portfolio (LO4, CFA4) Refer to the table below: 3 Doors, Inc. Down...
Problem 11-14 Minimum Variance Portfolio (LO4, CFA4)
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
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.)
The table below describes the expected return and the standard deviation of the return for Franchises...
The table below describes the expected return and the standard
deviation of the return for Franchises A and B:
Franchise A ($MM)
Franchise B ($MM)
Expected Return
10
20
Standard Deviation
20
30
Franchise A is _____ Franchise B in terms of total risk.
riskier than
less risky than
as risky as
None of the above
Refer the table below on the average excess return of the U.S. equity market and the...
Refer the table below on the average excess return of the U.S.
equity market and the standard deviation of that excess return.
Suppose that the U.S. market is your risky portfolio.
Average Annual Returns
U.S. Equity Market
Period
U.S. equity
1-Month
T-Bills
Excess return
Standard
Deviation
Sharpe
Ratio
1927–2018
11.77
3.38
8.34
20.36
0.41
1927–1949
9.40
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
0.43
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Time
Inflation in Year Just Ended
Par Value
Coupon
Payment
+
Principal Repayment
=
Total Payment
0
$
1,000.00
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2
%
1,020.00
$
71.40
0
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71.40
2
3
1,050.60
73.54
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Refer to the table below and calculate both the real and nominal rates of return on...
Refer to the table below and calculate both the real and nominal
rates of return on the TIPS bond in the second and third years.
(Do not round intermediate calculations. Round your answers
to 2 decimal places.)
Principal and Interest Payments for a Treasury
Inflation Protected Security
Time
Inflation in Year Just Ended
Par Value
Coupon
Payment
+
Principal Repayment
=
Total Payment
0
$
1,000.00
1
1
%
1,010.00
$
50.50
0
$
50.50
2
2
1,030.20
51.51
0...
For this question ask for the expected return -beta relationship . Must I repeat the E(R)...
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.
Must I repeat the E(R) formula for Beta F1 & F2 and then
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pg. 139 of Investments 11th edition thanks!
There's the question:
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