Question

1. Toyota Corp.'s stock is $30 per share. Its expected return is 22% and variance is 15%. Honda Corp.'s stock is $22 per share. Its expected return is 17% and variance is 8%. Benz Corp.'s stock is $50 per share. Its expected return is 10% and variance 7%. What would be the expected return of a portfolio consisting of 50% Toyota and 50% Honda?
% _____

* Place your answer in percentage form, say 5.99% and not .0599

2. Toyota has an expected return of 20%, and a variance of 0.011. Honda has an expected return of 20%, and a variance of 0.005. The covariance between Toyota and Honda is 0.08. Using these data, calculate the variance of a portfolio consisting of 50% Toyota and 50% Honda.

3. Toyota Corp.'s stock price has a variance of returns of 0.0250. Honda Corp.'s stock has a variance of returns of 0.0425. The covariance between Toyota and Honda is 0.0295. What is the correlation coefficient between Toyota and Honda?

*Use at least four decimal places in your answer.

4. Toyota Corp.'s stock price has a variance of returns equal to 0.0335. Honda Corp.'s stock price has a variance of returns equal to 0.0495. The covariance between Toyota and Honda is 0.0695. What is the standard deviation of a portfolio consisting of 50% Toyota and 50% Honda?

*Place your answer in decimal form

Answer 1

1.

Expected return of portfolio = (Weight of Toyota × return of Toyota) + (Weight of Honda × return of Honda)

= (50% × 22%) + (50% × 17%)

= 11% + 8.50%

= 19.50%

Expected return of portfolio is 19.50%.

2.

Variance of portfolio = [Toyota variance × Weight ^ 2] + [Honda variance × Weight ^ 2] + [2 × Weight toyota × Weight weight honda × covariance]

= [0.011 × 50%^2] + [0.005 × 50%^2] + [2 × 50% × 50% × 0.08]

= 0.00275 + 0.00125 + 0.04

= 0.044

Varinace of portfolio is 0.044.