A two-share portfolio held by an institutional investor has the following information: Years (t) ABC return (%) XYZ return (%) -4 6.6 24.5 -3 5.6 -5.9 -2 -9.0 19.9 -1 12.6 -7.8 0 14.0 14.8 Use the above information to answer the following questions: 4.a. ) Based on expected return alone, which of the two stocks is preferable? 4.b. Based on standard deviation alone which of the two stocks is preferable? 4.c. Compute the return of the portfolio
A two-share portfolio held by an institutional investor has the following information: Years (t) ABC return (%) XYZ return (%) -4 6.6 24.5 -3 5.6 -5.9 -2 -9.0 19.9 -1 12.6 -7.8 0 14.0 14.8 Use the above information to answer the following questions: 4.a. ) Based on expected return alone, which of the two stocks is preferable? 4.b. Based on standard deviation alone which of the two stocks is preferable? 4.c. Compute the return of the portfolio
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter3: Risk And Return: Part Ii
Section: Chapter Questions
Problem 3P: Two-Asset Portfolio
Stock A has an expected return of 12% and a standard deviation of 40%. Stock B...
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Question
- A two-share portfolio held by an institutional investor has the following information:
|
Years (t) |
ABC return (%) |
XYZ return (%) |
|
-4 |
6.6 |
24.5 |
|
-3 |
5.6 |
-5.9 |
|
-2 |
-9.0 |
19.9 |
|
-1 |
12.6 |
-7.8 |
|
0 |
14.0 |
14.8 |
Use the above information to answer the following questions:
4.a. ) Based on expected return alone, which of the two stocks is preferable?
4.b. Based on standard deviation alone which of the two stocks is preferable?
4.c. Compute the return of the portfolio
4.d. Compute the standard deviation of the portfolio if the weight of Stock XYZ is 20%
4.e. In your view, is the combination of Stock ABC and Stock XYZ good for diversification?
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