Question

Stocks A and B have the expected returns and standard deviations shown in the table below:...

Stocks A and B have the expected returns and standard deviations shown in the table below:

Asset

E(R)

Std. deviation

A

15%

30%

B

20%

50%

The correlation between A and B is 0.6. The risk-free rate is 3% and you have a risk-aversion parameter of 2. What is the proportion of your investment in A and B, respectively, in your optimal risky portoflio?

A.

25.0% in A ; 75.0% in B
B.

76.6% in A; 23,4% in B
C.

20.0% in A; 80.0% in B
D.

80.0% in A; 20.0% in B
E.

62.5% in A; 37.5% in B
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Asset E(R) Std. deviation A 12% 40% B 20% 50% Your optimal risky portfolio formed with...
Asset E(R) Std. deviation A 12% 40% B 20% 50% Your optimal risky portfolio formed with the two stocks above (A and B) has an expected return of 16% and a standard deviation of 32%. The risk-free rate is 4% and you have a risk-aversion parameter of 3. What is the proportion of your investment in A, B, and the risk-free asset, respectively, in your final portfolio? A. 53.3%; 17.8%; 28.9% B. 56.9%; 14.2%; 28.9% C. 37.5%; 12.5%; 50.0% D....
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.
Your optimal risky portfolio formed with the two stocks above (A and B) has an expected...
Your optimal risky portfolio formed with the two stocks above (A and B) has an expected return of 19% and a standard derivation of 32%. The risk-free rate is 4% and you have a risk-aversion parameter of 3. What is the proportion of your investment in A, B and the risk-free asset, respectively, in your final portfolio?
Q9. The expected returns and standard deviations for stocks A and B are rA=14% and rB=19%,...
Q9. The expected returns and standard deviations for stocks A and B are rA=14% and rB=19%, respectively, and A=23% and B=34%, respectively. The correlation of the returns on the two stocks is AB=0.3. (a) What is the expected return, rP, and standard deviation, P, of a portfolio with weights of wA=0.60 and wB=0.40 in stocks A and B, respectively? (b) Suppose now ?? = 3%, and ?? = 7%, the portfolio had zero risk, that is suppose ?? = 0...
Suppose the expected returns and standard deviations of stocks A and B are E(RA) 0.15, E(RB)...
Suppose the expected returns and standard deviations of stocks A and B are E(RA) 0.15, E(RB) 0.25, σA 0.40, and σB 0.65, respectively. a. Calculate the expected return and standard deviation of a portfolio that is composed of 40 percent A and 60 percent B when the correlation between the returns on A and B is 0.5. b. Whether the risk (standard deviation) of the portfolio will decrease or increase if the correlation between the returns on A and B...
Suppose the expected returns and standard deviations of stocks A and B are E( RA )...
Suppose the expected returns and standard deviations of stocks A and B are E( RA ) = 0.15, E( RB ) = 0.21, σ A = 0.48, and σ B = 0.72, respectively. Required: (a) Calculate the expected return and standard deviation of a portfolio that is composed of 42 percent A and 58 percent B when the correlation between the returns on A and B is 0.46. (Round your answers to 2 decimal places. (e.g., 32.16))   Expected return %...
14) Two assets have the following expected returns and standard deviations when the risk-free rate is...
14) Two assets have the following expected returns and standard deviations when the risk-free rate is 5%: Asset A E(rA) = 10% σA = 20% Asset B E(rB) = 15% σB = 27% An investor with a risk aversion of A = 3 would find that _________________ on a risk-return basis. Multiple Choice only asset A is acceptable only asset B is acceptable neither asset A nor asset B is acceptable both asset A and asset B are acceptable
Stocks A and B have a correlation coefficient of -0.8. The stocks' expected returns and standard...
Stocks A and B have a correlation coefficient of -0.8. The stocks' expected returns and standard deviations are in the table below. A portfolio consisting of 40% of stock A and 60% of stock B is constructed. Stock Expected Return Standard Deviation A 20% 25% B 15% 19% Refer to Exhibit 8.14. What percentage of stock A should be invested to obtain the minimum risk portfolio that contains stock A and B? a. 42% b. 58% c. 65% d. 72%...
Suppose the expected returns and standard deviations of Stocks A and B are E(RA) = .100,...
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....
Suppose the expected returns and standard deviations of Stocks A and B are E(RA) = .094,...
Suppose the expected returns and standard deviations of Stocks A and B are E(RA) = .094, E(RB) = .154, σA = .364, and σB = .624. a-1. Calculate the expected return of a portfolio that is composed of 39 percent Stock A and 61 percent Stock B when the correlation between the returns on A and B is .54. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a-2. Calculate...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT