Question

Portfolio Risk and Return.

**[Portfolio**] You have
the following investment portfolio: $5,000 is invested in the stock
of Johnson & Johnson (JNJ), and $10,000 is invested in the
stock of Intel Corp. (INTC).

- [1
**point**] What are the portfolio weights (*w**JNJ*and*w**INTC*)?

- [1
**point**] The return on the JNJ stock is 9% per year; the return on INTC stock is 11% per year. What is the return on your portfolio?

- [
**2 points**] The variance of returns on JNJ is*σ**JNJ**2**=0.40*, the variance of returns on INTC is*σ**INTC**2**=0.60*; The correlation coefficient between these two stocks is*ρ**JNJ,INTC**=0.7*. What is the variance of your portfolio?

Answer #1

A) Total investment = $5000 + $10000 =$15000

**Weight in JNJ = 5000/15000 = 33.33%**

**Weight in INTC = 10000/15000 = 66.67%**

B) Return on Portfolio = (Weight of JNJ x Return on JNJ ) + (Weight of INTC x Retrun on INTC)

Return on Portfolio = (33.33% x 9%)+ (66.67% x 11%)

**Return on Portfolio = 10.33%**

C) Variance is square of standard deviation.

Standard Deviation of Portfolio =

Standard Deviation of Portfolio = 0.68083

Variance of
Portfolio = (0.68083) ^ 2 = **0.4635**

**Variance of
portfolio = 0.4635**

Where,

W1= Weight in JNJ i.e. 33.33%

W2= Weight in INTC i.e. 66.67%

σ1 = Standard Deviation of JNJ i.e. 0.6324

σ2 = Standard Deviation of INTC i.e. 0.7745

Corr(1,2) = Correlation Coefficient between JNJ and INTC i.e. 0.7

. Portfolio risk and return
Emma holds a $5,000 portfolio that consists of four stocks. Her
investment in each stock, as well as each stock’s beta, is listed
in the following table:
Stock
Investment
Beta
Standard Deviation
Andalusian Limited (AL)
$1,750
0.90
12.00%
Tobotics Inc. (TI)
$1,000
1.30
12.00%
Water and Power Co. (WPC)
$750
1.20
18.00%
Makissi Corp. (MC)
$1,500
0.40
19.50%
Suppose all stocks in Emma’s portfolio were equally weighted.
Which of these stocks would contribute the least...

Consider the following information on portfolio weights,
predicted returns and standard deviation of returns for two
restaurant stocks, Super Foods Inc., and Henry's Dining Corp.
Assume the correlation between two stocks is 0.4. Given the
information, what is the portfolio's expected return? Provide your
finals answer in decimal points (e.g. 0.13) and not in percent
terms (e.g. 13%).
Stock
Weights
Return
Standard Deviation
Super Foods Inc.
0.63
0.14
0.03
Henry's Dining Corp.
(1-0.63)
0.10
0.03

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are positively correlated, but they are not perfectly correlated.
(That is, each of the correlation coefficients is between 0 and 1.)
Stock=A, B, C. Expected Return=9.15 ,11.40, 13.65 Standard
deviation:14%, 14, 14 Beta: 0.7, 1.2, 1.7 Fund P has one-third of
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You are given the following information about the stocks in a
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Stock
Return
Portfolio Weight
Standard Deviation
Blue Hotel Inc.
22%
45%
9%
Joys Food Inc.
25%
55%
11%
The correlation coefficient between the two stocks is 0.5.
Using the information above, calculate the following:
The expected return of the portfolio,
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The standard deviation of the portfolio.

You own a portfolio that has $3,850 invested in Stock A and
$6,100 invested in Stock B. If the expected returns on these stocks
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expected return on the portfolio?

7.You have a $1,000 portfolio which is invested in stocks A and
B plus a risk-free asset. $400 is invested in stock A. Stock A has
a beta of 1.3 and stock B has a beta of 0.7. You want a portfolio
beta of 0.9.
a.How much needs to be invested in stock B?
b.How much needs to be invested in the risk-free asset?

15. An investor can design a risky portfolio based on two
stocks, A and B. The standard deviation of return on stock A is
16.52%, while the standard deviation on stock B is 7.11%. The
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The expected return on stock A is 22.75%, while on stock B it is
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$500,000 in stocks, 8% annual return
$300,000 in bonds, 4% annual return
If the standard deviation of returns in your portfolio is 5%,
what is your coefficient of variation (i.e. risk to return ratio)?
Round your answer to two decimal places.

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Stock
Expected
Return
Standard
Deviation
Beta
A
9.18%
15%
0.8
B
11.02
15
1.2
C
13.32
15
1.7
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