Question

Q13. Stocks offer an expected rate of return of 10% with a standard deviation of 20%,...

Q13. Stocks offer an expected rate of return of 10% with a standard deviation of 20%, and gold offers an expected return of 5% with a standard deviation of 25%.

a. In light of the apparent inferiority of gold to stocks with respect to both mean return and volatility, would anyone hold gold? If so, demonstrate graphically why one would do so.

b. How would you answer (a) if the correlation coefficient between gold and stocks were 1? Draw a graph illustrating why one would or would not hold gold.

c. Could these expected returns, standard deviations, and correlation represent an equilibrium for the security market?

Homework Answers

Answer #1

I have answered the question below

Please up vote for the same and thanks!!!

Do reach out in the comments for any queries

Answer:

a)

b)

c)

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Suppose stocks offer an expected rate of returns of 10% with a standard deviation of 20%,...
Suppose stocks offer an expected rate of returns of 10% with a standard deviation of 20%, and gold offers an expected return of 5% with a standard deviation of 25%. (i) If the correlation between gold and stocks is sufficiently low, gold ______ be held as a component in the optimal portfolio. (ii) If the correlation coefficient between gold and stocks is 1.0, then gold ______ be held as a component in the optimal portfolio.        Question 1 options: A) (i)...
The expected return on stocks A and B are 20%, and 30%, respectively. The standard deviation...
The expected return on stocks A and B are 20%, and 30%, respectively. The standard deviation of stocks A and B are 20%, and 40%, respectivley. The correlation coefficient between the two stocks is negative one. You plan to form a portfolio from stocks A and B that will yield zero risk. What proportions of your money will you invest in stock A?
Expected Return Standard Deviation          Stocks, S 14                          &nb
Expected Return Standard Deviation          Stocks, S 14                                           30           Bonds, B 6 15           The correlation between stocks and bonds is ρ(S,B) = 0.05 Note: I've entered the expected returns and standard deviations as whole numbers (not decimals)    Treat the risk-free rate as the number 2 not 0.02 or 2%. The risk-free rate is 2 percent. The CAL that is tangent to the portfolio frontier of stock and bonds has an expected return equal to 9.5 percent. You wish to...
Stocks A and B have expected returns of 8% and 10%, and standard deviations of 12%...
Stocks A and B have expected returns of 8% and 10%, and standard deviations of 12% and 18%, respectively. Calculate the expected return and standard deviation of equally weighted portfolios of the two stocks if the correlation between the two stocks is 0.5? Repeat the calculation for correlation of 0 and ?0.5. If you could set the correlation between the two stocks, which of the three values would you choose? Explain.
Stock X has an expected return of 12% and the standard deviation of the expected return...
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...
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...
If you have one security with an expected return of 7% and a standard deviation of...
If you have one security with an expected return of 7% and a standard deviation of 2% and a second security with an expected return of 13% and a standard deviation of 2.4%, what would be the standard deviation of a portfolio that consists of 30% of the first security and 70% of this second security if the correlation coefficient between the two securities is -.30?
You have a portfolio with a standard deviation of 20 %20% and an expected return of...
You have a portfolio with a standard deviation of 20 %20% and an expected return of 16 %16%. You are considering adding one of the two stocks in the following table. If after adding the stock you will have 25 %25% of your money in the new stock and 75 %75% of your money in your existing​ portfolio, which one should you​ add? Expected Return Standard Deviation Correlation with Your​ Portfolio's Returns Stock A 1515​% 2626​% 0.40.4 Stock B 1515​%...
Consider two stocks, Stock D, with an expected return of 13 percent and a 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...
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.).