Question

- 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?

Answer #1

Given that,

Stock 1 has a expected return of Ra = 14% and a standard deviation of Sa = 12%.

Stock 2 has a expected return of Rb = 11% and a standard deviation of Sb = 11%.

Correlation C(a,b) = 0.5

For minimum variance portfolio, weight of stock 1 is

Wa = (Sb^2 - Sa*Sb*C(a,b))/(Sa^2 + Sb^2 - 2*Sa*Sb*C(a,b))

=> Weight of stock 1 Wa = (0.11^2 - 0.12*0.11*0.5)/(0.12^2 + 0.11^2 - 2*0.11*0.12*0.5) = 0.4135 or 41.35%

=> Weight of stock 2 = 1 - Wa = 1-0.4135 = 0.5865 or 58.65%

Return on this portfolio is Wa*Ra + Wb*Rb = 0.4135*14 + 0.5865*11 = 12.24%

The stock of Bruin, Inc., has an expected return of 22 percent
and a standard deviation of 37 percent. The stock of Wildcat Co.
has an expected return of 12 percent and a standard deviation of 52
percent. The correlation between the two stocks is .49. Calculate
the expected return and standard deviation of the minimum variance
portfolio.

Consider two stocks, Stock D, with an expected return of 13
percent and a standard deviation of 25 percent, and Stock I, an
international company, with an expected return of 6 percent and a
standard deviation of 16 percent. The correlation between the two
stocks is −.14. What are the expected return and standard deviation
of the minimum variance portfolio? (Do not round
intermediate calculations. Enter your answer as a percent rounded
to 2 decimal places.)

Consider two stocks, Stock D, with an expected return of 11
percent and a standard deviation of 26 percent, and Stock I, an
international company, with an expected return of 9 percent and a
standard deviation of 19 percent. The correlation between the two
stocks is –0.12. What are the expected return and standard
deviation of the minimum variance portfolio? (Do not round
intermediate calculations. Enter your answer as a percent rounded
to 2 decimal places.).

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...

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...

Stock A has an expected return of 12%, a standard deviation of
24% on its returns, and a beta of 1.2. Stock B has an expected
return of 15%, a standard deviation of 30% on its returns, and a
beta of 1.5. The correlation between the two stocks is 0.8. If we
invested $30,000 in Stock A and $20,000 in Stock B, what is the
beta of our portfolio?
Select one:
a. 1.03
b. 1.25
c. 1.32
d. 1.40
e....

There are 2 assets. Asset 1: Expected return 7.5%, standard
deviation 9% Asset 2: Expected return 11%, standard deviation 12%.
You are not sure about the correlation between 2 assets. You hold
30% of your portfolio in asset 1 and 70% in asset 2.
What is the highest possible variance of your portfolio?
Hint 1: Think how the portfolio variance depends on the
correlation between 2 assets.
Hint 2: Think which values the correlation between Asset 1 and
Asset 2...

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%

Suppose the characteristics of security A and B are given as
follow:
Expected return Standard deviation Stock A 12% 8% Stock B 18%
15%
Correlation coefficient between return of stock A and B is
0.5.
What is the expected value and standard deviation of return of
minimum variance portfolio constructed from stock A and B?

2. For this question, use the following data table: Expected
Return Standard Deviation AT&T 0.10 0.15 Microsoft 0.21 0.25
What is the minimum-risk (standard deviation) portfolio allocation
of AT&T and Microsoft if the correlation between the two stocks
is 0? 0.5? 1?-1? What is the standard deviation of each of these
minimum-risk portfolios?

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