A person is interested in constructing a portfolio. Two stocks are being considered. Letx = percent return for an investment in stock 1, and y = percent return for an investment instock 2. The expected return and variance for stock 1 are e(x) = 8.45% and Var(x) = 25.The expected return and variance for stock 2 are e(y) = 3.20% and Var(y) = 1. Thecovariance between the returns is sxy = −3.a. what is the standard deviation for an investment in stock 1 and for an investment instock 2? Using the standard deviation as a measure of risk, which of these stocks isthe riskier investment?

Q: Assume that using the Security Market Line(SML) the required rate of return(RA)on stock A is found…

A: As per the security market line following is the Rate of return for stock A and stock B…

Q: a. What is the expected return on a portfolio that is equally invested in the two assets? b. If a…

A: Information Provided: Stock beta = 1.35 Expected return = 16% Risk-free asset return = 4.8%…

Q: From the following information, calculate covariance between stocks A and B and expected return and…

A: Correlation between A and B = 0.65 Weight of A in portfolio = 50% Weight of B in portfolio = 50%…

Q: An investment portfolio consists of two securities, X and Y. The weight of X is 30%. Asset X's…

A: a. expected return of portfolio=wx×rx+wy×ry=0.3×15%+0.7×23%=20.6% answer: expected return = 20.6%

Q: Assuming that the CAPM approach is appropriate, compute the required rate of return for each of the…

A: As per CAPM,  Expected Return = Risk free Rate + (beta * market risk premium) Where market risk…

Q: Assume that using the Security Market Line(SML) the required rate of return(RA)on stock A is found…

A: Required rate of return on stock A is RARequired rate of return on stock B is RBRisk free rate is…

Q: A portfolio is comprised of equal weights of two stocks labeled Stock X and Stock Y. The covariance…

A: Weight of stock A (WX) = 0.50 Weight of stock B (WY) = 0.50 Covariance between stock X and stock Y…

Q: Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is…

A: Given that;Return on market portfolio is denoted by RM.Required return on stock A is RA and the…

Q: When working with the CAPM, which of the following factors can be determined with the most…

A: Capital asset pricing model uses the beta factor to estimate the risk of a given security.

Q: he investor invested in stocks and bonds to form a minimum variance portfolio. The return and…

A: A minimum variance portfolio indicates a well-diversified portfolio that consists of individually…

Q: Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is…

A: Capital Asset Pricing Model (CAPM):   CAPM is the method of calculating the expected return on…

Q: An Investor has access to a set of N securities (where N is large). Each of them has an annual…

A: A group of financial assets such as stocks, bonds, commodities, cash, and cash equivalents, as well…

Q: Stock A has a standard deviation of 3.5% while stock B has a standard deviation of 4.6%. If both…

A: Standard deviation is a variation in the mean value of given data. Standard deviation is a…

Q: Consider a T-bill with a rate of return of 5 percent and the following risky securities. From which…

A: Risk Seekers:  Risk seekers willing to pay for taking risk for getting more profits.…

Q: From the following information, calculate covariance between stocks A and B and expected return and…

A: Expected return on portfolio E(Rp) is calculated by sum product of stock returns and weight in the…

Q: The investor invested in stocks and bonds to form a minimum variance portfolio. The return and…

A: FORMULA FOR MINIMUM PORTFOLIO VARIANCE : WA=σB2-corrA,B×σA×σBσA2+σB2-2×corrA,B×σA×σBWB=1-WA Where,…

Q: The securities of firms A and B have the expected return and standard deviations given below. The…

A: Standard deviation = Sqroot of variance   Portfolio variance  = w12σ12 + w22σ22 + 2w1w2 σ1 σ2 r12…

Q: a. Based on the following information, calculate the expected return and standard deviation for each…

A: expected return = ∑Probability × Return  State  Probability  J's Return K's Return Expected…

Q: The following portfolios are being considered for investment. During the period under consideration,…

A: Sharpe measure: In sharpe measure, total risk of the portfolio is measured by the standard deviation…

Q: Need help on all

A: Hi there, Thanks for posting the question. As per Q&A Guidelines, we should answer the first…

Q: A risky portfolio is provided with an expected rate of return of 19.5%, standard deviation of 30%…

A: This is a question is regarding Capital Market Line where a risky portfolio is invested along with…

Q: Assume that using the Security Market Line the required rate of return (RA) on stock A is found to…

A: As per the above consideration The ratio of expected return on A and expected return on B is

Q: A portfolio management organization analyzes 60 stocks and constructs a mean-variance efficient…

A: The question is based on the concept of two popular assets allocation model, Index Model and…

Q: A portfolio manager creates the following portfolio: Security Security Weight Expected Standard…

A: Standard deviation of portfolio is dependent on the weight of each security in the in the portfolio…

Q: The covariance between stocks A and B is 0.0014, standard deviation of stock A is 0.032, and…

A: Covariance: It is a tool that helps in judging the movement of two options. If the covariance…

Q: The probability distributions of expected returns for stocks XMX and BMX are as follows: Probability…

A: Let Pn = Probability of each state Xn = Return of XMX in each state Bn = Return of BMX in each state…

Q: Consider the following two investment proposals and their returns under different economic…

A: given, economic scenario probability return on GE stock  return on TI stock bear 0.5 25% -2%…

Q: Suppose that there exist two securities (A and B) with annual expected returns equal to ra = 3% and…

A: The portfolio is the combination of different securities which combine to minimize the risk and to…

Q: According to CAPM, the expected rate of return of a portfolio with a beta of 1.0 and an alpha of 0…

A: CAPM is useful model to calculate theoretically/ expected rate of return It considers risk free rate…

Q: You have a portfolio of investment which consists of Stock A with a return of A% and Stock B with a…

A: According to the Law of Sum of variances, variances of two stock can be added but that of standard…

Q: The market and Stock J have the following probability distributions:  ProbabIlity         rM rJ…

A: Return and risk are the two main components of the investment. Return means earning an additional…

Q: estimate the standard deviations of Stocks A and B. Then, compute the expected return, standard…

A: a) Standard deviation of A= (Beta2*Market SD2+Firm-specific SD2)(1/2)…

Q: Under which of the following scenarios, the minimum variance portfolio that contains two stocks has…

A: Assuming weight of the first stock and the second stock in the portfolio as (W) and (1 - W) Standard…

Q: You have a portfolio which consists of 75% of stock 1 (o^2 = 0.16) and 25% of stock 2 (o^2 = 0.09).…

A: Return on the stock is based on the risk free rate, market return and the risk associated with the…

Q: When working with the CAPM, which of the following factors can be determined with the most…

A: As per the Capital Assets Pricing Model: Rf  denotes to Risk-Free Rate of Return  MRp denotes the…

Q: If a stock portfolio is well-diversified, then the portfolio variance   Group of answer choices…

A: A well Diversified portfolio is an balanced portfolio that includes a verity of securities. As the…

Q: Assume that two securities, A and B, constitute the market portfolio, their proportions and…

A: Most of the investors use beta in order to know whether the stock moves in the same direction as the…

Q: An investor can design a risky portfolie based on two stocks A and B. Stock A has an expected retun…

A: Portfolio variance is a measurement of risk, that tells about real returns of stocks in a portfolio…

Q: Estimate the mean and variance of this portfolio, as well as its standard deviation.

A: Mean return of the portfolio = Weight of Mercedes * Mean return of Mercedes + Weight of BMW * Mean…

Q: Assume that using the Security Market Line(SML) the required rate of return(RA)on stock A is found…

A: Calculation of ratio of beta of A to beta of B: Answer: The ratio of beta A to beta B is 0.4286

Q: Assume the risk-free rate is r = 3%. Consider the data below: Stock(stock 1, stock 2) Expected…

A: Weight of stock 1 (W1) =σ22-ρ12σ1σ2σ21+σ22-2ρ12σ1σ2=(30)2-0×40×30(30)2+(40)2-2×0×40×30=9002500=0.36…

Q: The following expected return and the standard deviation of current returns are known:   Security…

A: The standard deviation is a measure of the consistency of returns of an investment. The standard…

Q: Mean returns for portfolios are calculated by taking the weighted average of the mean returns for…

A: The return on a particular portfolio is calculated by dividing the portfolio's net loss or profit by…

Q: A portfolio management organization analyzes 72 stocks and constructs a mean-variance efficient…

A: No. of stocks = 72 Expected returns = 72 Variance = 72   To be determined - Covariance to optimize…

Portfolio Management

Portfolio management is the process by which an investor decides that how the person will invest in a variety of assets in order to get a desired return in the future. A portfolio means a pool of assets that includes securities, bonds, and other investment instruments which helps in risk minimization of the money that has been invested. In other words, it can be said that a portfolio means a combination of assets in which an investor decides to invest their money in order to get a lump sum return in the future or even a series of cash flow that the person is expecting at the end of their job life.