Question

There are three distinct frontier portfolios, A, B and C.

Portfolio |
Expected Returns |
Standard Deviation |

A |
0.4 |
0.40 |

B |
0.2 |
0.30 |

C |
0.3 |
0.25 |

- Compute, ρ
_{AB}, the correlation between frontier portfolios A and B.

- Calculate the expected return on the global minimum variance portfolio.

- Calculate the maximum possible Sharpe Ratio from these frontier portfolios, when the risk free rate is 2% per annum.

d. Explain, illustrating with graphs, the difference between the portfolio frontier when there is a risk free asset available for investment as compared to the portfolio frontier when there is not.

Answer #1

Suppose the expected returns and standard deviations of stocks
A and B are E(RA) 0.15, E(RB) 0.25,
σA 0.40, and σB 0.65, respectively.
a. Calculate the expected return and
standard deviation of a portfolio that is composed of 40 percent A
and 60 percent B when the correlation between the returns on A and
B is 0.5.
b. Whether the risk (standard
deviation) of the portfolio will decrease or increase if the
correlation between the returns on A and B...

Suppose we have 3 assets:
Expected returns = [0.1 0.15 0.12]
Standard déviations = [0.2 0.25 0.18]
Correlations = [1 0.8 0.4
0.8 1 0.3
0.4 0.3 1]
Find all possible pairwise two-asset portfolios and plot on a
backround of random portfolios of all
three assets. Comment on the efficient frontier.

given a sharpe ratio for the market portfolio of 0.4 . calculate
the expected return on stock with astardard deviation return of 0.5
and acorrelation with the market portfolio return of 0.6.the risk
free rate is 5% and the stardard deviation of the market portfolio
returns is 0.25

(i)
The expected returns on two distinct
risky assets A and B are correlated and a portfolio consisting of A
and B has zero variance of expected return. What can be said about
the correlation between the expected returns of risky assets A and
B?
(ii)
An investor constructs an efficient
portfolio that invests 150% of his investment in the tangent
portfolio of risky asset and is short in the risky free asset for
the rest. What can be said...

Calculate the Sharpe ratio of each of the three portfolios in
Problem 40 (the initial portfolio with 0% invested in Hannah, the
second portfolio with 40% invested in Hannah, and the third
portfolio with 15% invested in Hannah). What portfolio weight in
Hannah stock maximizes the Sharpe ratio?
Problem#40
You are currently only invested in the Natasha Fund (aside from
risk-free securities). It has an expected return of 14% with a
volatility of 20%. Currently, the risk-free rate of interest...

Q9. The expected returns and standard deviations for stocks A
and B are rA=14% and rB=19%, respectively, and A=23% and B=34%,
respectively. The correlation of the returns on the two stocks is
AB=0.3. (a) What is the expected return, rP, and standard
deviation, P, of a portfolio with weights of wA=0.60 and wB=0.40
in stocks A and B, respectively? (b) Suppose now ?? = 3%, and ?? =
7%, the portfolio had zero risk, that is suppose ?? = 0...

You are constructing a portfolio of two assets, Asset A and
Asset B. The expected returns of the assets are 10 percent and 16
percent, respectively. The standard deviations of the assets are 27
percent and 35 percent, respectively. The correlation between the
two assets is .37 and the risk-free rate is 5.4 percent. What is
the optimal Sharpe ratio in a portfolio of the two assets? What is
the smallest expected loss for this portfolio over the coming year...

The standard deviation of expected returns for investments X and
Y equal 10.3% and 7.8%, respectively. The correlation between
returns for X and Y is 0.30. How much risk reduction, that is
diversification benefit in basis points, does the minimum risk
portfolio provide?
a. 112 b. 134 c. 154 d. 178 e. 193

You are constructing a portfolio of two assets, asset X and
asset Y. The expected
returns of the assets are 7 percent and 20 percent, respectively.
The standard
deviations of the assets are 15 percent and 40 percent,
respectively. The
correlation between the two assets is .30 and the risk-free rate is
2 percent.
Required:
a) What is the optimal Sharpe ratio in a portfolio of the two
assets?
b) What is the smallest expected loss for this portfolio over...

9.
A mutual fund manager constructs three portfolios using Oracle
and Intel stocks:
Portfolio A: $ 1,100 in Oracle; $2,900 in Intel
Portfolio B: $ 2,000 in Oracle; $2,000 in Intel
Portfolio C: $ 2,500 in Oracle; $1,500 in Intel
The correlation between Oracle’s and Intel’s returns is 0.709.
The expected returns are 15.5% and 13% for Oracle and Intel,
respectively. The standard deviation is 45.00% for Oracle stock and
35.00% for Intel stock.
Calculate the expected returns and standard...

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