Angela’s portfolio holds security A, which returned 12.0%, security B, which returned 15.0% and security C, which returned -5.0%. At the beginning of the year 45% was invested in security A, 25.0% in security B and the remaining 30% was invested in security C. The correlation between AB is 0.75, between AC 0.35, and between BC -0.5. Securities A's standard deviation is 12%, security B's standard deviations is 15% and security C's is 10%. Required: Calculate the: a) Expected return b) Portfolio variance of Angela's Portfolio

Angela’s portfolio holds security A, which returned 12.0%, security B, which returned 15.0% and security C, which returned -5.0%. At the beginning of the year 45% was invested in security A, 25.0% in security B and the remaining 30% was invested in security C. The correlation between AB is 0.75, between AC 0.35, and between BC -0.5. Securities A's standard deviation is 12%, security B's standard deviations is 15% and security C's is 10%. Required: Calculate the: a) Expected return b) Portfolio variance of Angela's Portfolio

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 15P

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Angela’s portfolio holds security A, which returned 12.0%, security B, which returned 15.0% and security C, which returned -5.0%. At the beginning of the year 45% was invested in security A, 25.0% in security B and the remaining 30% was invested in security C. The correlation between AB is 0.75, between AC 0.35, and between BC -0.5. Securities A's standard deviation is 12%, security B's standard deviations is 15% and security C's is 10%. a) A five-year bond pays interest The par value is GHc 1000 and the coupon rate equals seven (7) percent. If the market's required return on the bond is eight (8) percent, at what market price does this sell for?                                    Literature argues that bond prices are inversely related to interest rates leading to different types of bonds issue. Briefly define Par Bonds, Premium Bonds and Discount Bonds. b) Cal Bank has a corporate bond that matures in two years but makes semi-annual interest The par value is GHc 1000,…
Angela’s portfolio holds security A, which returned 12.0%, security B, which returned 15.0% and security C, which returned -5.0%. At the beginning of the year 45% was invested in security A, 25.0% in security B and the remaining 30% was invested in security C. The correlation between AB is 0.75, between AC 0.35, and between BC -0.5. Securities A's standard deviation is 12%, security B's standard deviations is 15% and security C's is 10%.    Required: Calculate the: A five-year bond pays interest The par value is GHc 1000 and the coupon rate equals seven (7) percent. If the market's required return on the bond is eight (8) percent, at what market price does this sell for?                                    Literature argues that bond prices are inversely related to interest rates leading to different types of bonds issue. Briefly define Par Bonds, Premium Bonds and Discount Cal Bank has a corporate bond that matures in two years but makes semi-annual interest The par…
Angela’s portfolio holds security A, which returned 12.0%, security B, which returned 15.0% and security C, which returned -5.0%. At the beginning of the year 45% was invested in security A, 25.0% in security B and the remaining 30% was invested in security C. The correlation between AB is 0.75, between AC 0.35, and between BC -0.5. Securities A's standard deviation is 12%, security B's standard deviations is 15% and security C's is 10%. Required: Calculate the: a) Explain what happens to a portfolio's overall risk when securities that are uncorrelated are combined.    b) List four steps that go into selecting an optimal portfolio of risky assets.
Angela’s portfolio holds security A, which returned 12.0%, security B, which returned 15.0% and security C, which returned -5.0%. At the beginning of the year 45% was invested in security A, 25.0% in security B and the remaining 30% was invested in security C. The correlation between AB is 0.75, between AC 0.35, and between BC -0.5. Securities A's standard deviation is 12%, security B's standard deviations is 15% and security C's is 10%. Required: Calculate the: a) Expected return and Portfolio variance of Angela's Portfolio b) Portfolio Standard deviation of What happens to the portfolio risk if market conditions reduce the risk of security B by 50%? c) Explain what happens to a portfolio's overall risk when securities that are uncorrelated are combined.
Angela’s portfolio holds security A, which returned 12.0%, security B, which returned 15.0% and security C, which returned -5.0%. At the beginning of the year 45% was invested in security A, 25.0% in security B and the remaining 30% was invested in security C. The correlation between AB is 0.75, between AC 0.35, and between BC -0.5. Securities A's standard deviation is 12%, security B's standard deviations is 15% and security C's is 10%. Required: Calculate the: 1. Portfolio Standard deviation of What happens to the portfolio risk if market conditions reduce the risk of security B by 50%?
Angela’s portfolio holds security A, which returned 12.0%, security B, which returned 15.0% and security C, which returned -5.0%. At the beginning of the year 45% was invested in security A, 25.0% in security B and the remaining 30% was invested in security C. The correlation between AB is 0.75, between AC 0.35, and between BC -0.5. Securities A's standard deviation is 12%, security B's standard deviations is 15% and security C's is 10%. Required: Calculate the: a) Expected return and Portfolio variance of Angela's Portfolio b) Portfolio Standard deviation of What happens to the portfolio risk if market conditions reduce the risk of security B by 50%?
In a particular year, Aggie Mutual Fund earned a return of 15% by making the following investments in the following asset classes: Weight Return Bonds 10 % 6 % Stocks 90 % 16 % The return on a bogey portfolio was 10%, calculated as follows: Weight Return Bonds (Lehman Brothers Index) 50 % 5 % Stocks (S&P 500 Index) 50 % 15 % The contribution of selection within markets to total excess return was A. 3%. B. 5%. C. 4%. D. 1%.
The benchmark portfolio has an asset allocation of 65% stocks, 30% bond and 5% cash. The annual returns on these three asset classes are 7.20%, 3.90% and 1.10%. Over the same time period, a portfolio manager had an asset allocation of 72% stocks, 22% bonds and the balance in cash. The returns on the three asset classes in the manager's portfolio were 7.48%, 4.13% and 1.56% respectively. What was the contribution to the manager's value-added, in % (to three decimal places) from his selection skills?
In a particular year, Salmon Arm Mutual Fund earned a return of 16% by making the following investments in asset classes: Weight return Bonds 20% 12% stocks 80% 17% The return on a bogey portfolio was 12%, based on the following: Weight Return Bonds(aggregate bond index) 60% 10% Stocks (S&P 500 index) 40% 15% The total excess return on the managed portfolio was __________.%
The benchmark portfolio has an asset allocation of 65% stocks, 30% bond and 5% cash. The annual returns on these three asset classes are 7.70%, 4.10% and 1.30%. Over the same time period, a portfolio manager had an asset allocation of 72% stocks, 23% bonds and the balance in cash. The returns on the three asset classes in the manager's portfolio were 7.69%, 4.20% and 1.51% respectively. What was the contribution to the manager's value-added, in % (to three decimal places) from his asset allocation skills?
ris owns a stock with an annualized return of 8.45 percent. If the risk-free rate is 2.25 percent, market returns are 9.00 percent, the standard deviation of the stock returns is 13.30 percent, the standard deviation of market returns is 11.40 percent, and the stock’s beta is 1.2, what is Iris’s Modigliani ratio for the investment? a. -2.75 percent b. -1.44 percent c. 1.72 percent d. 4.41 percen
For the upcoming year, the risk-free rate is 2 percent, and the expected return to the market is 7 percent. You are also given the following covariance matrix for Securities J,K, andL. \table[[Covariance,Security J,Security K,Security L],[Security J,0.0012532,0.0010344,0.0019711],[Security K,0.0010344,0.0023717,0.0013558],[Security L,0.0019711,0.0013558,0.0048442]] Also assume that you form a portfolio by putting 0 percent of your funds in Security J, 40 percent of your funds in Security K, and 60 percent of your funds in Security L. Based on this information, determine the standard deviation of the resulting portfolio. ◻ 6.47% 5.27% 4.98% 5.82% 4.77%