Question

A portfolio of $ 100,000 is composed of two assets: A stock whose expected annual return is 10% with an annual standard deviation of 20%; A bond whose expected annual return is 5% with an annual standard deviation of 12%. The coefficient of correlation between their returns is 0.3. An investor puts 60% in the stock and 40% in bonds.

- What is the expected annual return, standard deviation of the portfolio?
- What is the 1-year 95% VaR? Explain in non-technical terms the meaning of the number you calculated.
- What is the 1-year 99% VaR? Explain in non-technical terms the meaning of the number you calculated.

Answer #1

1.

Annual return=60%*10%+40%*5%=8.00%

Standard deviation=sqrt((60%*20%)^2+(40%*12%)^2+2*60%*20%*40%*12%*0.3)=14.20%

2.

=-(8%-1.65*14.20%)*100000=15430.00

This means that in 5 out of the 100 cases, the portfolio will lose more than 15430. In other words, in 95 out of the 100 cases, the portfolio will lose less than 15430

3.

=-(8%-2.33*14.20%)*100000=25086.0000

This means that in 1 out of the 100 cases, the portfolio will
lose more than 25086. In other words, in 99 out of the 100 cases,
the portfolio will lose less than 25086

An investor can design a risky portfolio based on two stocks, A
and B. Stock A has an expected return of 21% and a standard
deviation of return of 35%. Stock B has an expected return of 14%
and a standard deviation of return of 21%. The correlation
coefficient between the returns of A and B is 0.3. The risk-free
rate of return is 1.9%. What is the expected return on the optimal
risky portfolio?

A portfolio is composed of two stocks, A and B. Stock A has a
standard deviation of return of 23% while stock B has a standard
deviation of return of 21%. Stock A comprises 40% of the portfolio
while stock B comprises 60% of the portfolio. If the variance of
return on the portfolio is .0380, the correlation coefficient
between the returns on A and B is __________.
0.589
0.604
0.599
0.579

A portfolio is composed of two stocks, A and B. Stock A has a
standard deviation of return of 20%, while stock B has a standard
deviation of return of 26%. Stock A comprises 60% of the portfolio,
while stock B comprises 40% of the portfolio. If the variance of
return on the portfolio is 0.035, the correlation coefficient
between the returns on A and B is _________.
A .157
B.392
C.235
D.102

A portfolio is composed of two stocks, A and B. Stock A has a
standard deviation of return of 24%, while stock B has a standard
deviation of return of 18%. Stock A comprises 60% of the portfolio,
while stock B comprises 40% of the portfolio. If the variance of
return on the portfolio is 0.041, the correlation coefficient
between the returns on A and B is _________.
Multiple Choice
0.727
0.436
0.291
0.131

The expected return of ABC is 15 percent, and the expected
return of DEF is 23 percent. Their standard deviations are 10
percent and 23 percent, respectively, and the correlation
coefficient between them is zero.
a.
What is the expected return and standard deviation of a
portfolio composed of 25 percent ABC and 75 percent DEF?
b.
What is the expected return and standard deviation of a
portfolio composed of 75 percent ABC and 25 percent DEF?
c.
Would a...

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...

Calculate the expected returns, standard deviations and
coefficient of variations of a two-stock portfolio. We have the
following data for Stock 'C' and Stock 'S'.
Out of a total portfolio valuing SR 100,000, SR 40,000 is
invested in stock 'C' and SR 60,000 in stock 'S'.
Stock C
Stock S
Expected Return
11%
25%
Standard Deviation
15%
20%
Correlation
0.3
Note: For calculation of expected returns, standard deviations
and coefficient of variations, assume the following allocation mix
to run a...

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%

Stock A has an expected return of 7% and Stock B has an expected
return of 11%. Stock A has a standard deviation of 5% while stock B
has a standard deviation of 15%. The correlation coefficient
between the returns on A and B is 0.28. What are the expected
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