Asset 1 Asset 2 Expected return 0.07 0.078 Standard deviation 0.1 0.2 if correlation is 0.4 weight 1 = 40% weight 2 = 60% what is the covariance what is the return of the portfolio what is the standard deviation of the portfolio?

Asset 1 Asset 2 Expected return 0.07 0.078 Standard deviation 0.1 0.2 if correlation is 0.4 weight 1 = 40% weight 2 = 60% what is the covariance what is the return of the portfolio what is the standard deviation of the portfolio?

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter8: Risk And Rates Of Return

Section: Chapter Questions

Problem 1PROB

See similar textbooks

Related questions

Q: What are the expected return and standard deviation of a portfolio invested 30% in Stock A and 70%…

A: Expected return from a portfolio is the weighted average of the return expected from individual…

Q: Problem 2: You have access to three risky assets (Stocks A, B, and C) and ariskless asset:Expected…

A: Portfolio refers to the combination of different assets or securities that will yield the maximum…

Q: Calculate the expected return of portfolio and standard deviation of portfolio of 3 Assets (Security…

A: Given information : Probablity Security B Security C Security D Recession 0.1 -29.50% 24.50%…

Q: Exercises: a. The standard deviation of returns is 0.30 for Stock A and 0.20 for Stock B. The…

A: Hi, there, Thanks for posting the question. As per our Q&A honour code, we must answer the first…

Q: A rates of return of asset and market have the following distribution: Steady of Economy…

A: 1) Computation:

Q: QUESTION B1 An investor is holding a portfolio which comprises £4 million of Bond A and £6 million…

A: Note: Parts a and b have been solved below.

Q: A В 1 Equity A Weighted Weighted Squared State of Rate of Squared Deviation Probability Rate of…

A: expected return is the amount of profit an investor can expect receiving on an investement.

Q: INV 1 4b You have invested in a portfolio of 60% in risky assets (Portfolio R) and 40% in T-bills.…

A: The standard deviation of a portfolio is generally computed to measure the overall variation or…

Q: he discounted returns on a portfolio are normally distributed with mean 1.2% and volatility 13%.…

A: The Expected Shortfall (ES): The expected shortfall is a risk measure that measures the average…

Q: 1. Consider 3 stocks A, B, and C and the risk-free rate RF=0.5%. The logarithmic rates of return are…

A: Hi, since you have posted multiple questions and the first uestion has multiple sub-parts. We will…

Q: Returns State of Economy Prob J K Recession 0.25 -0.02 0.034 Normal 0.6 0.138 0.062…

A: Covariance is a measure of the relationship between two random variables. The portfolio return is…

Q: 1. 1. The average variance of financial assets on a market is 0.4% and the average covariance tween…

A: Hi There, Thanks for posting the questions. As per our Q&A guidelines, must be answered only one…

Q: For investment A, the probability of the return being 20.0% is 0.5, 10.0% is 0.4, and -10.0% is 0.1…

A: Probability Return 0.5 20% 0.4 10% 0.1 -10%

Q: 2 local Philippine equities have the same risk (standard deviation) and return expectations: 10 %…

A: Expected Rate of return of a portfolio is calculated as: Expected…

Q: Asset Expected Return (%) Standard Deviation (%) 1 15 10 20 15 18 20 4 12 10 10 5 14 10 16 20 What…

A: A portfolio is a collection of financial investments such as stocks, bonds, commodities, cash and…

Q: Using the SML [LO4] Asset W has an expected return of 11.8 percent and a beta of 1.15. If the…

Q: Problem 3: You have access to two investment opportunities. Mutual Fund A, which promises 20%…

A: 1. In order to calculate the weights of each asset, let us assume we invest “wA” proportion in…

Q: Example 9: What is the portfolio standard deviation for a two-asset portfolio comprised of the…

A: Weight in asset A (Wa) = 40000 / (40000 + 60000) = 0.4 Weight in asset B (Wb) = 1 - 0.4 = 0.6…

Q: Stock A Stock B Market Standard Deviation Return Correlation Coefficient between A & M Correlation…

A: The Capital Asset Pricing Model(CAPM) refers to the relationship between expected return for assets…

Q: Portfolio Risk and Return: You are given the following distributions of returns for assets (single…

A: Expected return can be defined as the weighted average of the distribution of probable returns of…

Q: State of Economy Probability ABC Company Expected Return Expected Return XYZ Company Very Poor 0.30…

A: Solution : Co-Variance is calculated as follows. Co-Variance : Dx * Dy / N…

Q: Asset X Asset Y E(R) = 8% E(R,) - 18% E(s.) = 7% E(s,) - 25% Calculate the expected return and…

A: Hi! Thank you for the question, As per the honor code, we are allowed to answer one question at a…

Q: Problem 2: For following payoff structure and correlation matrix Standard deviation Return Asset 1…

A: Here, Risk Free Rates are 4% and 1%

Q: Returns State of Economy Prob J K Recession 0.25 -0.02 0.034 Normal 0.6 0.138 0.062…

A: Since you have asked multiple question, we will solve the first question for you. If you want any…

Q: You are considering an investment in a portfolio P with the following expected returns in three…

A: Usually, investors do not invest all of their money in a single asset. In order to meet their…

Q: three assets. The first one has expected return of 10% and standard deviation of return of 0.14.…

A: Every asset has some probability and return so that it's expected return (mean) and risk ( standard…

Q: Correlation and Beta You have been provided the following data about the securities of three firms,…

A: Risk free rate (Rf) = 0.05 Market return (Rm) = 0.12 Market standard deviation (Sm) = 0.20

Q: A portfolio consists of two stocks: Stock Expected Return Standard Deviation Weight Stock 1 10% 15%…

A: Since you have posted a question with multiple sub-parts, we will solve first three subparts for…

Q: (Q1) For each portfolio, calculate the risk premium per unit of risk (Sharpe ratio) that you expect…

A: Risk premium means the premium which is expected to be generated from the stock. Higher is the risk…

Q: Portfolio Expected return Standard deviation Q 7.8% 10.5% R 10.0% 14.0% S 4.6% 5.0% T…

A: Given: Portfolio Expected return Standard deviation Q 7.8% 10.5% R 10.0%…

Q: Suppose only four assets A, B, C and F are being traded in the market. Asset В C Return RA RB Rc RF…

A: Solution-Return from portfolio P=16×16.09+8×1.15+20+3.45+5×79.31=257.44+9.2+69+396.55=7%

Q: Asset Return Standard Deviation12%20%0% Cov(A,B) There are two types of investors in the market.…

A: The most efficient sections of the risk-return premium spectrum are occupied by an optimal…

Q: As an investor you have the secruities available for investment in Table 1: Table 1 Expectred…

A: Portfolio: It is a mix of assets in different proportions in which investors can invest in.

Q: Q5. You are considering two assets with the following characteristics. Return Standard deviation…

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

Q: 9. Consider the case of two financial assets and three market conditions (states). The table below…

A: The question is related Portfolio Management. The expected return is calculated with the help of…

Q: 3. Consider a risky asset, A, and a risk-free asset, F. The average rate of return and the standard…

A: Combining a risk free asset with a risky asset to create a portfolio significantly improve the risk…

Q: Question 16 a. Based on the following information, calculate the expected return and standard…

A: “Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: Problem 5 Assume that you manage a risky portfolio with an expected rate of return of 18% and a…

A: Here, Standard Deviation is 28% Expected Return is 18% Risk Free Rate is 7% Client Investment in…

Q: Portfolio Expected return Standard deviation Q 7.8% 10.5% R 10.0% 14.0% S 4.6% 5.0% T…

A: Sharpe ratio is to be calculated to find the market portfolio. Sharpe ratio is the the ratio between…

Q: How do I calculate the variance of the portfolio as shown in the image?

A: Calculating Variance is simple, but one needs to follow the certain steps to reach the answer. First…

Concept explainers

Market Efficiency

Market efficiency refers to the market's ability to provide investors with all available information about investment options for buying and selling securities. Market efficiency reflects the true value of securities without undervaluing or overvaluing them. When the quality and quantity of information increase, the market becomes more efficient, allowing it to reduce arbitrage and obtain higher market returns from investment. In a well-functioning market, everyone receives all information completely and immediately at no cost. It opens up a plethora of opportunities for investors to access various investment options.

Question

Asset 1
Asset 2
Expected return
0.07
0.078
Standard deviation
0.1
0.2
if correlation is 0.4
weight 1 = 40%
weight 2 = 60%
what is the covariance
what is the return of the portfolio
what is the standard deviation of the portfolio?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

Step 2

Step 3

Step 4

Step 5

Step by step

Solved in 5 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Two-Asset Portfolio Stock A has an expected return of 12% and a standard deviation of 40%. Stock B has an expected return of 18% and a standard deviation of 60%. The correlation coefficient between Stocks A and B is 0.2. What are the expected return and standard deviation of a portfolio invested 30% in Stock A and 70% in Stock B?
An asset has an average return of 10.11 percent and a standard deviation of 19.02 percent. What range of returns should you expect to see with a 68 percent probability? Multiple Choice −18.42% to 38.64% −46.95% to 67.17% −8.91% to 11.31% −27.93% to 48.15% −8.91% to 29.13%
Asset 1 has a standard deviation of returns of 0.15 while Asset 2 has a standard deviation of returns of 0.20. The correlation coefficient between the returns of the two assets is 0.34. Which of the following is closest to the covariance of the returns of the two assets if they are combined into an equally weighted portfolio? Group of answer choices 0.0129 0.0207 0.0102 0.1440
Returns State of Economy Prob J K Recession 0.25 -0.02 0.034 Normal 0.6 0.138 0.062 Boom 0.15 0.218 0.092 Based on the following information, 1. calculate the expected return and standard deviation for each of the following stocks. 2.What are the covariance and correlation between the returns of the two stocks? 3.Calculate the portfolio return and portfolio standard deviation if you invest equally in each asset.
(b) Assume that the covariance between Stock X and Stock Y is -0.005. Calculate the expected rate of return, variance and standard deviation of Jenny’s portfolio. {Hint: you can express your answers for the variance and standard deviation in decimals or percentage form:• For decimals, the covariance in your equation should be -0.005• For percentage, the covariance in your equation should be -50%2(= -50/10000)]
IBM AMZN E(R) 0.07 0.11 Standard Deviation0.10 0.18 Correlation0.45 Suppose you have the above data on IBM and Amazon, compute the expected return and the standard deviation of an equally weighted portfolio invested in the two securitiesis there a diversification benefit? Please show your work and round to at least 3 decimal places
a. Use the following information: E[rXOM] = 15.6%, standard deviationXOM = 15.9% E[rMS]=29.7%, standard deviationMS = 35.2% Correlation of returns: ρXOM,MS = 0.139, rf=10% If the optimal amount to invest in the first asset (w) is 0.43, what is the variance of the risky portfolio when w=0.43? (write in decimal format using 5 decimal places) b. When choosing the best point of the POS (the curved line connecting two possible assets you can invest in) you need to find the point that: 1.Has the greatest difference between it’s return and the risk free rate, thus leading to the best return 2. You must solve for the optimal y allocation in order to find the best point on the POS 3. The point with the lowest standard deviation 4. The point with the greatest Sharpe ratio
asset 1 has an expected return of 10% and a standard deviation of 20%. Asset 2 has an expected return of 15% and a standard deviation of 30%. the correlation between the two assets is -1.0. portfolios of these two assets will have a standard deviation of what?
Returns State of Economy Prob J K Recession 0.25 -0.02 0.034 Normal 0.6 0.138 0.062 Boom 0.15 0.218 0.092 Based on the following information, a.What are the covariance and correlation between the returns of the two stocks? b.Calculate the portfolio return and portfolio standard deviation if you invest equally in each asset.
Problem 2: You have access to three risky assets (Stocks A, B, and C) and ariskless asset:Expected Return, Standard DeviationStock A 8% , 35%Stock B 12% , 50%Stock C 15% , 75% Riskless Asset expected return 5%Correlation(A,B) 0.2Correlation(A,C) 0.2Correlation(B,C) -0.2 a) What are the portfolio weights of the tangency portfolio?b) What is the Sharpe ratio of the tangency portfolio?
Question 2 The expected returns and standard deviation of returns for two securities are as follows: Security Z Security Y Expected Return 15% 35% Standard Deviation 20% 40% The correlation between the returns is +0.25. a) Calculate the expected return and standard deviation for the following portfolios: i) All in Z ii) 0.75 in Z and 0.25 in Y iii) 0.5 in Z and 0.5 in Y iv) 0.25 in Z and 0.75 in Y v) All in Y b) Draw the mean-standard deviation frontier. c) Which portfolios might not be held by an investor who likes high expected return and low standard deviation?
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?