Question

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 round your answers to 4 decimal places, e.g., 32.1616.) b. What is the expected return on the minimum variance portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. If the covariance between the returns on the two stocks is −.05, what are the minimum variance weights? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.) d. What is the variance of the portfolio in part (c)? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., .1616)

Answer #1

= ((61.3%^2)-0.0027)/((32.3%^2)+(61.3%^2)-2*0.0027)=**78.59%
or 0.7859**

Weight of B =1-78.59%=**21.41% or 0.2141**

b. Expected return =78.59%*8.3%+21.41%*14.3% =**9.58%
c.** If covariance
=-0.05

Weight of A = ((Standard Deviation of B)^2 -Covariance)/((Standard Deviation of A)^2 + (Standard Deviation of B)^2 - 2 * Covariance)

= ((61.3%^2)+0.05)/((32.3%^2)+(61.3%^2)+2*0.05)=

Weight of B =1-0.7340=

d. Variance= (Weight of A * Standard Deviation of A)^2 + (weight of B * standard Deviation of B)^2 + 2* Weight of A * Standard Deviation of A * weight of B * standard Deviation of B * correlation =((0.7859*32.3%)^2+(0.2141*62.3%)^2+2*0.7859*0.2141*0.0027)

Suppose the expected
returns and standard deviations of Stocks A and B are
E(RA) = .100, E(RB) = .160,
σA = .370, and σB = .630.
a-1.
Calculate the expected
return of a portfolio that is composed of 45 percent Stock A and 55
percent Stock B when the correlation between the returns on A and B
is .60. (Do not round intermediate calculations and enter
your answer as a percent rounded to 2 decimal places, e.g.,
32.16.)
a-2....

You are given the following information:
State of
Economy
Return on
Stock A
Return on
Stock B
Bear
.111
-.054
Normal
.106
.157
Bull
.082
.242
Assume each state of the economy is equally likely to
happen.
Calculate the expected return of each of the following stocks.
(Do not round intermediate calculations and enter your
answers as a percent rounded to 2 decimal places, e.g.,
32.16.)
Expected return
Stock A
%
Stock B...

You are given the following information:
State of
Economy
Return on
Stock A
Return on
Stock B
Bear
.109
−
.052
Normal
.108
.155
Bull
.080
.240
Assume each state of the economy is equally likely to happen.
Calculate the expected return of each stock. (Do not round
intermediate calculations. Enter your answers as a percent rounded
to 2 decimal places, e.g., 32.16.)
Expected return
Stock A
9.90 Correct %
Stock B
14.90 Incorrect %
Calculate the standard deviation...

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.).

There are two stocks in the market, Stock A and Stock B . The
price of Stock A today is $85. The price of Stock A next year will
be $74 if the economy is in a recession, $97 if the economy is
normal, and $107 if the economy is expanding. The probabilities of
recession, normal times, and expansion are .30, .50, and .20,
respectively. Stock A pays no dividends and has a correlation of
.80 with the market portfolio....

Create a portfolio using the four stocks and information
below:
Expected Return
Standard Deviation
Weight in Portfolio
Stock A
21.00%
16.00%
17.00%
Stock B
34.00%
33.00%
22.00%
Stock C
33.00%
21.00%
16.00%
Stock D
27.00%
27.00%
45.00%
----------------------
----------------------
----------------------
----------------------
Correlation (A,B)
0.4400
----------------------
----------------------
Correlation (A,C)
0.3300
----------------------
----------------------
Correlation (A,D)
0.9400
----------------------
----------------------
Correlation (B,C)
0.7000
----------------------
----------------------
Correlation (B,D)
0.0200
----------------------
----------------------
Correlation (C,D)
0.6400
----------------------
----------------------
all answered right exept the last two
(Do not...

1. You have a portfolio of two stocks that has a total value of
$28,000. The portfolio is 40 percent invested in Stock J. If you
own 185 shares of Stock K, what is Stock K's share price?
2. What are the portfolio weights for a portfolio that has 200
shares of stock A that sell for $97 per share and 175 shares of
Stock B that sell for $134 per share? (Do not round intermediate
calculations and round your...

The following are estimates for two stocks.
Stock
Expected Return
Beta
Firm-Specific Standard Deviation
A
11
%
0.90
32
%
B
16
1.40
40
The market index has a standard deviation of 19% and the
risk-free rate is 11%.
a. What are the standard deviations of stocks
A and B?
b. Suppose that we were to construct a
portfolio with proportions:
Stock A
0.40
Stock B
0.40
T-bills
0.20
Compute the expected return, standard deviation, beta, and
nonsystematic standard deviation...

EXPECTED RETURNS
Stocks A and B have the following probability distributions of
expected future returns:
Probability
A
B
0.1
(12%)
(20%)
0.2
6
0
0.4
16
19
0.2
21
25
0.1
34
41
Calculate the expected rate of return, rB, for Stock B (rA =
14.00%.) Do not round intermediate calculations. Round your answer
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%
Calculate the standard deviation of expected returns, ?A, for
Stock A (?B = 16.17%.) Do not round intermediate calculations.
Round your...

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