Question

Consider the following expected annual returns and standard deviations: Stock Expected Return Standard Deviation Boeing 4.2%...

Consider the following expected annual returns and standard deviations:

  1. Stock
  1. Expected Return
  1. Standard Deviation
  1. Boeing
  1. 4.2%
  1. 9%
  1. Amazon.com
  1. 6.7%
  1. 14.5%

What would be the one-year expected return and standard deviation of a portfolio that consists of 5,000 shares of Boeing and 1,000 shares of Amazon.com stocks? Boeing trades at $145.46 a share and Amazon.com trades at $433.7 a share as of today. Suppose the correlation coefficient between the annual stock returns of the two companies is 0.

A. Expected return: 6.07%; Standard deviation: 11.3%

B. Expected return: 6.33%; Standard deviation: 7.4%

C. Expected return: 4.61%; Standard deviation: 11.0%

D. Expected return: 4.61%; Standard deviation: 12.1%

E. Expected return: 5.13%; Standard deviation: 22.7%

F. Expected return: 5.13%; Standard deviation: 9.7%

Use the information provided in the previous question. Complete the Sharpe Ratio for each of the following three assets: (1) the Boeing stock; (2) the Amazon stock; (3) the portfolio discussed in Question 8. Use 1.1% as the risk free rate. Which one of these three assets gives the highest Sharpe Ratio?

A. Boeing: 0.4925;     Amazon: 0.8832;      Portfolio: 0.3191

B. Boeing: 0.2403;     Amazon: 0.8832;      Portfolio: 0.2313

C. Boeing: 0.4925;     Amazon: 0.3862;      Portfolio: 0.3191

D. Boeing: 0.2403;     Amazon: 0.3862;      Portfolio: 0.4146

E. Boeing: 0.4925;     Amazon: 0.8832;      Portfolio: 0.0439

F. Boeing: 0.3325;     Amazon: 0.3832;      Portfolio: 0.5139

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