Question

Stock X has an expected return of 12% and the standard deviation of the expected return is 20%. Stock Z has an expected return of 7% and the standard deviation of the expected return is 15%. The correlation between the returns of the two stocks is +0.3. These are the only two stocks in a hypothetical world.

What is the expected return and the standard deviation of a portfolio consisting of 80% Stock X and 20% Stock Z? Will any rational investor hold this portfolio (in this hypothetical two stock world)? Explain why or why not.

What is the expected return and the standard deviation of a portfolio consisting of 20% Stock X and 80% Stock X? Will any rational investor hold this portfolio (in this hypothetical two stock world)? Explain why or why not. (You might want to do Part C first).

What is the maximum amount of Stock Z a rational investor will hold in his or her portfolio? What is the expected return and the standard deviation of this portfolio? The maximum amount is a percentage between 0% and 100%, and to receive full credit your answer should be within 1 percentage points of the correct answer. (Hint: Set up Excel to calculate the portfolio expected return and standard deviation as a function of the portfolio weights, which must sum to 100%. You can find the correct answer to this part by manually changing the portfolio weights, or by using the Solver function on Excel).

Explain why different rational investors might hold different portfolios of these two stocks. Identify the range of portfolios a rational investor might hold. Your answer should take this form: A rational investor will hold a maximum of ___% in Stock X (with ___% in Z), or a minimum of _____% in Stock X (with _____ in Z). The set of feasible portfolios will fall within the range defined by these two end points.

Answer #1

Rational Investor will Invest in 80% of X and 20% of Y beacuse of Higher sharpe ratio than the Individual Securities.

Rational Investor will NOT Invest in 20% of X and 80% of Y because of Lower sharpe ratio than Stok A. So a rational Investor invest total cash in Stock X instead of Investing 80% in Y and 20% in X

Stock X has an expected return of 12% and the standard deviation
of the expected return is 20%. Stock Z has an expected return of 7%
and the standard deviation of the expected return is 15%. The
correlation between the returns of the two stocks is +0.3. These
are the only two stocks in a hypothetical world. What is the
expected return and the standard deviation of a portfolio
consisting of 80% Stock X and 20% Stock Z?
Will any...

QUESTION 12
The investor is presented with the two following stocks:
Expected Return
Standard Deviation
Stock A
10%
30%
Stock B
20%
60%
Assume that the correlation coefficient between the stocks is
-1. What is the standard deviation of the return on the portfolio
that invests 30% in stock A?
A.
26%
B.
49%
C.
30%
D.
33%

Stock 1 has a expected return of 14% and a standard deviation
of 12%.
Stock 2 has a expected return of 11% and a standard deviation
of 11%.
Correlation between the two stocks is 0.5.
Create a minimum variance portfolio with long positions in both
stocks.
What is the return on this portfolio?

Assume Stocks A and B have the following characteristics: Stock
Expected Return Standard Deviation A 8.3% 32.3% B 14.3% 61.3% The
covariance between the returns on the two stocks is .0027. a.
Suppose an investor holds a portfolio consisting of only Stock A
and Stock B. Find the portfolio weights, XA and XB, such that the
variance of her portfolio is minimized. (Hint: Remember that the
sum of the two weights must equal 1.) (Do not round intermediate
calculations and...

Q1. Stock X has a standard deviation of 13% and stock
Y’s standard deviation is 18%. The portfolio has exhibited a
standard deviation of 10% when 65% of the funds were allocated in
Stock X. What is the expected covariance between stocks X and
Y?
Select one:
a. -0.21
b. -0.10
c. -0.95
d. -24.40
Q2. The set of portfolios with the maximum rate of
return for every given risk level is known as the optimal
frontier.
Select one:
a....

You have a two-stock
portfolio. One stock has an expected return of 12% and a standard
deviation of 24%. The other has an expected return of 8% and a
standard deviation of 20%. You invested in these stocks equally
(50% of your investment went toward each of the two stocks). If the
two stocks are negatively correlated, which one of the following is
the most feasible standard deviation of the
portfolio?
25%
22%
18%
not enough information to
determine

You have a portfolio with a standard deviation of 26% and an
expected return of 18%.
You are considering adding one of the two stocks in the
following table. If after adding the stock you will have 20% of
your money in the new stock and 80% of your money in your existing?
portfolio, which one should you? add?
expected return
standard deviation
correlation with your portfolios return
stock a
13%
24%
0.4
stock b
13%
17%
0.6
Standard deviation...

Given the following information:
Expected return of Stock A
.12 (12%)
Standard Deviation of A's Return
1
Expected return on stock B
.2 (20%)
Standard Deviation of B's return
6
Correlation Coefficient of the returns on stock A & stock
B
-.6 (this is not the covariance, it is the CC)
If as an investor I chose to invest 75% of my funds into stock
A, and 25% into stock B, what is the measure of my coefficient of
variation...

Stock A has an expected return of 13% and a standard deviation
of 22%, while Stock B has an expected return of 15% and a standard
deviation of 25%. If an investor is less risk-averse, they will be
likely to choose…
A. Stock A
B. Stock B
Stock A has a beta of 1.8 and an expected return of 12%. Stock B
has a beta of 0.7 and an expected return of 7%. If the risk-free
rate is 2% and...

Stock X has a 10% expected return, a beta coefficient of 0.9,
and a 35% standard deviation of expected returns. Stock Y has a
12.5% expected return, a beta coefficient of 1.2, and a 25%
standard deviation. The risk-free rate is 6%, and the market risk
premium is 5%.
a. Calculate each stock’s coefficient of variation.
b. Which stock is riskier for a diversified investor?
c. Calculate each stock’s required rate of return.
d. On the basis of the two...

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