Question

You want to invest in two shares, X and Y. The following data are available for...

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 portfolio.

Homework Answers

Answer #1

Expected return of the portfolio= ?PiRi=Weight of x*return of x+ Weight of Y*return of Y

=0.70*9%+0.30*7%=6.3%+21%=8.4%

Pi

Ri

PiRi

SHARE X

0.70

9

6.3

SHARE Y

0.30

7

2.1

8.4

Variance of portfolio =(Weight of X)2 *(Standard deviation of x)2+ (Weight of B)2*(Standard deviation of B)2+(2Correlation

Of And B *standard deviation of A*standard deviation of B*weight of A*weight of B)

=0.72*0.142+0.32*0.122+ (2*0.7*0.14*0.12*0.7*0.3)=0.49*0.0196+(0.09*0.0144)+(1.4*0.0168*0.21)

=0.009604+0.001296+0.0.0049392=0.0158392

Standard deviation of the portfolio=?variance of the portfolio=?0.015839=0.125854=12.5854%

Thus expected return of the portfolio=8.4% and standard deviation of the portfolio=12.59%

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
Portfolio P consists of Stock X and Stock Y. Stock X weight is 70%. Stock X...
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%
You wish to invest in two hedge funds: Eldorado and Shangrila. The expected return on the...
You wish to invest in two hedge funds: Eldorado and Shangrila. The expected return on the Eldorado hedge fund is 12% and the standard deviation of this return is 16%. The expected return on the Shangrila hedge fund is 20% and its standard deviation is 25%. The covariance between returns on the Eldorado fund and Shangrila fund is 80(%)^2. What percentage of your wealth should you invest in each of these two funds to earn 18% expected return on your...
A recent inheritance from your late uncle’s estate has provided you with funds available for investment....
A recent inheritance from your late uncle’s estate has provided you with funds available for investment. You have been provided with the following information for three stocks: Stocks X, Y, and Z.               Stock Expected Return Standard Deviation Beta X 8.00% 15% 0.5 Y 9.50% 15% 0.9 Z 13.50% 15% 1.4 The returns on the three stocks are positively correlated, but they are not perfectly correlated. (I.e., each of the correlation coefficients is between 0 and 1.0.) There are two diversified...
Given the following information on a portfolio of Stock X and Stock Y, what is the...
Given the following information on a portfolio of Stock X and Stock Y, what is the portfolio standard deviation? Probability of boom state = 30% Probability of normal state = 70% Expected return on X = 14.5% Expected return on Y = 14% Variance on X = 0.004725 Variance on Y = 0.0189 Portfolio weight on X = 50% Portfolio weight on Y = 50% Correlation between X and Y = -1
Intro You want to invest in either a stock or Treasury bills (the risk-free asset). The...
Intro You want to invest in either a stock or Treasury bills (the risk-free asset). The stock has an expected return of 6% and a standard deviation of returns of 34%. T-bills have a return of 2%. Attempt 1/1 for 10 pts. Part 1 If you invest 70% in the stock and 30% in T-bills, what is your expected return for the complete portfolio? Move on Attempt 1/1 for 10 pts. Part 2 What is the standard deviation of returns...
Suppose that there are only two stocks, X and Y, listed in a market. There are...
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%....
Following information is available about two securities which constitute a portfolio: Security Expected return Std. deviation%...
Following information is available about two securities which constitute a portfolio: Security Expected return Std. deviation% A 14% 40 B     18% 20 Correlation coefficient (A,B) is -0.45. The portfolio consists of 40% of A and 60% of B. Find out the expected returns and standard deviation of the portfolio.
Consider two assets (X and Y) with mX = 10%, mY = 10%, σX2=.16, σY2=.25, and...
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...
Consider the following expected returns, volatilities, and correlations: Stock Expected Return Standard Deviation Correlation with Duke...
Consider the following expected returns, volatilities, and correlations: Stock Expected Return Standard Deviation Correlation with Duke Energy Correlation with Microsoft Correlation with Walmart Duke Energy 14% 6% 1.0 -1.0 0.0 Microsoft 44% 24% -1.0 1.0 0.7 Walmart 23% 14% 0.0 0.7 1.0 You create a 2 stock portfolio with $1,000,000. If you invest $600,000 in Walmart and the rest in Microsoft, what is the standard deviation of your portfolio? Group of answer choices 16.60% 18.75% 31.4% 2.76%
A portfolio consists of two shares: X and Y. Variance of returns for share X is...
A portfolio consists of two shares: X and Y. Variance of returns for share X is 0,4 and for share Y is 0,5. Covariance of returns between X and Y is (-0,08). Calculate the proportion of share Y in the portfolio necessary to build a minimum-variance portfolio consisting only of these two shares. Describe what does minimum-variance portfolio means from the point of view of Markowitz theory Please send me the answer with the steps and the equation
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT