Question

1.)In a universe with just two assets, a risky asset and a risk-free asset, what is the slope of the Capital Allocation Line if the Expected return of the risky asset is 12.16% and the standard deviation of the returns of the risky asset is 19.25%. The return on the risk-free asset is 3.88%  

2.)Peter Griffin calculates that his portfolio's risk, as measured by the standard deviation, is 21.96%. His portfolio is made up of many stocks from just two companies, South Park Company and Quahog Company. South Park Co.'s returns have a standard deviation of 13.17% and Quahog Co.'s returns have a standard deviation of 27.97%. If the weight of Quahog Co. in his portfolio is 67.94%, what is the correlation between the returns of Quahog and South Park.

3.)South Park Company's stock has an expected Return of 6.56% while Quahog Company's stock has an expected return of 3.8%. What % of my wealth should I invest in Quahog Company's stock to have an expected return of 10.86%? Report you answer as a % with 2 decimals. If your answer is 3.56%, just enter/type "3.56"

4.)An investment opportunity has 4 possible outcomes. The possible returns in each of these outcomes are -7%, 2.9%, 5.7% and 12.9%. If each of these outcomes is equally likely, what is the risk (as measured by the population standard deviation) of this investment? Provide the answer as a % with 1 decimal rounded off. If your answer is 3.56%, just enter/type "3.6".

Answer 1

1.
=(12.16%-3.88%)/19.25%=0.43012987012987

2.
=((21.96%)^2-(67.94%*27.97%)^2-((1-67.94%)*13.17%)^2)/(2*67.94%*(1-67.94%)*13.17%*27.97%)=0.64377051428928

3.
=1-(10.86%-3.8%)/(6.56%-3.8%)=-155.797101449275%

4.
=SQRT(0.25*(-7%-(0.25*(-7%)+0.25*2.9%+0.25*5.7%+0.25*12.9%))^2+0.25*(2.9%-(0.25*(-7%)+0.25*2.9%+0.25*5.7%+0.25*12.9%))^2+0.25*(5.7%-(0.25*(-7%)+0.25*2.9%+0.25*5.7%+0.25*12.9%))^2+0.25*(12.9%-(0.25*(-7%)+0.25*2.9%+0.25*5.7%+0.25*12.9%))^2)=7.13700742608553%