Question

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 -.12. What is the weight of each stock in the minimum variance portfolio? (Round your answer to 4 decimal places.) Weight of Stock D Weight of Stock I

Answer #1

To find the fraction of wealth to invest in Stock D that will result in the risky portfolio with minimum variance the following formula to determine the weight of Stock D in risky portfolio should be used |

Where | ||

Stock D | E[R(d)]= | 11.00% |

Stock I | E[R(e)]= | 9.00% |

Stock D | Stdev[R(d)]= | 26.00% |

Stock I | Stdev[R(e)]= | 19.00% |

Var[R(d)]= | 0.06760 | |

Var[R(e)]= | 0.03610 | |

T bill | Rf= | 12.00% |

Correl | Corr(Re,Rd)= | -0.12 |

Covar | Cov(Re,Rd)= | -0.0059 |

Stock D | Therefore W(*d)= | 0.3637 |

Stock I | W(*e)=(1-W(*d))= | 0.6363 |

Where | |||||

Var = std dev^2 | |||||

Covariance = Correlation* Std dev (r)*Std dev (d) |

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.).

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.)

The stock of Bruin, Inc., has an expected return of 22 percent
and a standard deviation of 37 percent. The stock of Wildcat Co.
has an expected return of 12 percent and a standard deviation of 52
percent. The correlation between the two stocks is .49. Calculate
the expected return and standard deviation of the minimum variance
portfolio.

Asset K has an expected return of 11 percent and a standard
deviation of 26 percent. Asset L has an expected return of 9
percent and a standard deviation of 21 percent. The correlation
between the assets is 0.21. What are the expected return and
standard deviation of the minimum variance portfolio?
Expected return%
Standard deviation%

Stock 1 has a expected return of 14% and a standard deviation
of 12%.
Stock 2 has a expected return of 11% and a standard deviation
of 11%.
Correlation between the two stocks is 0.5.
Create a minimum variance portfolio with long positions in both
stocks.
What is the return on this portfolio?

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%

The following are estimates for two stocks.
Stock
Expected Return
Beta
Firm-Specific Standard Deviation
A
11
%
0.90
32
%
B
16
1.40
40
The market index has a standard deviation of 19% and the
risk-free rate is 11%.
a. What are the standard deviations of stocks
A and B?
b. Suppose that we were to construct a
portfolio with proportions:
Stock A
0.40
Stock B
0.40
T-bills
0.20
Compute the expected return, standard deviation, beta, and
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standard deviation of 41 percent. The correlation between Stocks A
and B is .30, between Stocks A and C is .20, and between Stocks B
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Stock
Return
Portfolio Weight
Standard Deviation
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45%
9%
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25%
55%
11%
The correlation coefficient between the two stocks is 0.5.
Using the information above, calculate the following:
The expected return of the portfolio,
The variance of the portfolio,
The standard deviation of the portfolio.

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