Question

Consider two assets (X and Y) with mX = 10%, mY = 10%, σX2=.16, σY2=.25, and Cov(X,Y) = -.125. What is the expected return and variance of the portfolio having 70% invested in X and 30% invested in Y? Compare the risk and return of this portfolio with the risks and returns associated with investing everything in either X or Y.

What is rXY?

What is the expected return of the portfolio (m.7X+.3Y)?

What is the standard deviation of the portfolio (s.7X+.3Y)?

How does the standard deviation of the portfolio (s.7X+.3Y) compare to the standard deviations of assets X and Y?

Answer #1

You are constructing a portfolio of two assets, asset X and
asset Y. The expected
returns of the assets are 7 percent and 20 percent, respectively.
The standard
deviations of the assets are 15 percent and 40 percent,
respectively. The
correlation between the two assets is .30 and the risk-free rate is
2 percent.
Required:
a) What is the optimal Sharpe ratio in a portfolio of the two
assets?
b) What is the smallest expected loss for this portfolio over...

Stocks X, Y, Z are currently traded at PX = $10, PY = $8, and PZ
= $15. Their standard deviations of the returns are σX = 30%, σY =
15%, and σZ = 20%. The return correlations between:
[1]XandYis-0.7,[2]XandZis0.2,and[3]YandZis0.5.
a. What is the standard deviation of the returns of the
equal-weighted portfolio of Stock X and Y?
b. What is the standard deviation of the returns of the
value-weighted portfolio of Stock X and Z?

Portfolio P consists of Stock X and Stock Y. Stock X
weight is 70%. Stock X expected return is 14%, Stock Y expected
return is 10%. Stock X standard deviation of return is 3%, Stock Y
standard deviation of return is 1%. Correlation of Stock X and
Stock Y returns is -0.46. Expected portfolio P return
is:
6.91%
8.50%
12.80%
13.26%

The two risky assets you can invest in are Exxon and BP. Exxon
has a mean return of 8% and a standard deviation of 10%. BP has
mean return of 10 percent and standard deviation of 15 percent. The
correlation between the two is 0.25. The tangency portfolio has
weight of 55% in Exxon.
The risk free asset has return of 3.0
percent. What is the expected return and standard deviation of the
tangency portfolio?
You desire an expected return...

a) Calculate the expected return andstandard deviation of a portfolio invested in the
following two risky assets.SecurityWE(r)σA40%1018.63B60%58.27Correlation coefficient ρ= -
0.49b) Calculate the expected return of a
complete portfolio invested equally in the risky portfolio
calculated previously (a) and risk-free asset with 4% return.
Compare your results?

Consider the following information
State Probability
X Z
Boom .25
15% 10%
Normal .60
10% 9%
Recession .15
5% 10%
What is the expected return and standard deviation for a
portfolio with an investment of $6000 in asset X and $4000 in asset
Y?

Suppose that there are only two stocks, X and Y, listed in a
market. There are 200 outstanding shares of stock X and 600
outstanding shares of stock Y. Current prices per share are pX =
40$ and pY = 20$. (i) What is the market portfolio in this market?
Suppose that the expected returns on stocks X and Y are μX = 10%
and μY = 20%. Standard deviation of returns are σX = 15% and σY =
30%....

A portfolio consists of 50% invested in Stock X and 50% invested
in Stock Y. We expect two probable states to occur in the future:
boom or normal. The probability of each state and the return of
each stock in each state are presented in the table below.
State
Probability of state
Return on Stock X
Return on Stock Y
Boom
30%
25%
35%
Normal
70%
10%
5%
What are the expected portfolio return and standard
deviation?
Select one:
a....

You want to invest in two shares, X and Y. The following data
are available for the two shares:
Share X
Expected Return: 9%
Standard Deviation :14%
Beta: 1.10
Share Y
Expected Return: 7%
Standard Deviation: 12%
Beta : 0.85
If you invest 70 percent of your funds in Share X, the remainder
in Share Y and if the correlation of returns between X and Y is
+0.7, compute the expected return and the standard deviation of
returns from the...

Benefits of diversification. Sally Rogers has decided to invest
her wealth equally across the following three assets. What are her
expected returns and the risk from her investment in the three
assets? How do they compare with investing in asset M
alone? Hint: Find the standard deviations of asset M and of the
portfolio equally invested in assets M, N, and O. States
Probability Asset M Return Asset N Return Asset O Return Boom
31% 14% 24% 2% Normal 52%...

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