Consider a portfolio of equity and fixed-income (debt) with expected returns of 13% and 8%, and standard deviations of 20% and 12%, respectively. ρE,D = 0.3. What are the weights on debt for the minimum variance portfolio (MVP)? Group of answer choices 24% 18% 32% 82%

Consider a portfolio of equity and fixed-income (debt) with expected returns of 13% and 8%, and standard deviations of 20% and 12%, respectively. ρE,D = 0.3. What are the weights on debt for the minimum variance portfolio (MVP)? Group of answer choices 24% 18% 32% 82%

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...

See similar textbooks

Related questions

Q: Using the rule of 78s, a borrower who repaid a 12-month loan after only 7 months would save O 7/12…

A: The Rule of 78s is a method used for allocating the interest charges on a loan across its payment…

Q: Kristjan borrowed 140 000 from a bank 4 years ago. The annual interest rate was 6.6% at the time and…

A: Here,Loan Amount $ 140,000.00Interest Rate6.60%Time Period in years12Refinancing Interest…

Q: Foundation, Incorporated, is comparing two different capital structures: an all-equity plan (Plan I)…

A: Using M&M Proposition I, the share price is

Q: What is the present value of a $175 annual payment over 10 years if interest rates are 4 percent…

A: To compute the present value of an annual payment over 10 years at an interest rate of 4 percent, we…

Q: There are three production stages required before a pair of skis produced by Fjord Fabrication can…

A: Production stageselling PriceValue Added1NOK 6706706702NOK 2450(2450-670)17803NOK 3400(3400-2450)950

Q: 3. Compound interest and its effects Understanding the Impact of Compounding There are many reasons…

A: Variables in the question: Clancy:Savings at the end of every year=$2025 Compounding…

Q: What will be the balance at the end of the tenth year on a monthly payment $130,000 loan with a…

A: When the borrower borrows a loan from the lender, he has to pay a rate of interest on the borrowed…

Q: An owner of the Atrium Tower Office Building is currently negotiating a 5-year lease with ACME Corp.…

A: Net Present Value (NPV) =Present Value of Cash Inflows - Initial InvestmentPresent Value Factor =…

Q: 5. The Akana Company expects to sell 3,000 units, ± 15 percent, of a new product. The variable cost…

Q: You are a manager at Northern Fibre, which is considering expanding its operations in synthetic…

A: Free Cash Flow is that amount which is earned by the investor from the project. It is that amount of…

Q: Given the information below for StartUp Company, compute the expected share price at the end of 2022…

A: Here,…

Q: Vasudevan Inc. recently reported operating income of $2.80 million, depreciation of $1.20 million,…

A: Free cash flows = Net Income + Depreciation - Expenditures on fixed assets and net working…

Q: Bond valuation. Estonian company issued 10-year bonds exactly four years ago at a coupon rate of 4%.…

A: Given information,Number of years: yearsCoupon rate: Par value: Yield: Compounding frequency:…

Q: A $10 000 bond with 5% interest payable quarterly, redeemable at par on November 15, 2034, was…

A: Bonds are debt securities that represent loans made by investors to entities such as governments,…

Q: A brand has bonds on the market with 19 years to maturity, a YTM of 11.0 percent, a par value of…

A: Compound = n = Semiannually = 2Time = t = 19 * 2 = 38Yield to Maturity = r = 11 / 2 = 5.5%Face Value…

Q: Valuation of Preferred Stock Beart Inc. issued preferred stock with a par value of $100 and an…

A: Giventhe par value of stock is $100the annual dividend rate is 8%.

Q: A financial services company is considering a new investment in a new technology platform for…

A: Expected return is the anticipated gain or loss an investor can reasonably predict to achieve from…

Q: again be sold and, again, brand-new ones would be purchased - all for the same pric as for the…

A: NPV is most used method of capital budgeting based on the time value of money and can be found as…

Q: Find the monthly payment needed to amortize principal and interest for the fixed-rate mortgage. Use…

A: A mortgage refers to a covered loan that is borrowed to purchase a property with the property itself…

Q: Roenfeld Corp believes the following probability distribution exists for its stock. What is the…

A: Coefficient of Variation = Standard deviation / Expected returnExpected return(Er) = ∑(r∗P)Wherer =…

Q: A small company can produce 500 dolls per week. The doll retails for $30. The variable costs are…

A: To calculate the break-even point as a percentage of capacity, we'll first determine the break-even…

Q: a. If Nicki could earn 11 percent on her money, what is the present value of annuity A with $6,000…

A: Annuity refers to a series of payments with a fixed number of instalments of the same value and made…

Q: On May 1, the balance on your credit card is $573.26. On May 6, you make a pur you make a payment of…

A: In credit cards the average daily balance is important and is weighted average balance for the whole…

Q: Rappaport Industries has 5,100 perpetual bonds outstanding with a face value of $2,000 each. The…

A: We can determine the PV of tax shield from perpetual debt using the formula below:

Q: Scenario: Suppose Greenback Corporation, an Australian company, issued 10-year bonds with a maturity…

A: According to bartleby guidelines , if question involves multiple sub parts , then 1st sub 3 parts…

Q: The future value is $. (Round to the nearest cent as needed.) The compound interest is $. (Round to…

A: We can determine the FV using the formula below:In the formula above q = compounding frequency =…

Q: Your broker has developed a list of firms, their betas, and the return he expects the stock to yield…

A: Capital Asset Pricing Model (CAPM) is an alternative model to find out the cost of equity or the…

Q: A borrower is faced with choosing between two loans. Loan A is available for $82,000 at 6 percent…

A: Here,ParticularsLoan ALoan BLoan amount (PV) $ 82,000.00 $ 82,000.00Interest rate6.00%7.00%Number of…

Q: 9. A four-year project requires $1,000,000 as the first cost and brings $2,000,000 at the end of the…

A: We can determine the IRR by rearranging the FV formula and solving for r.

Q: You have a loan outstanding. It requires making nine annual payments of $7,000 each at the end of…

A: This is the case of Future Value of annuity Future Value of annuity = PMT * [ {(1+ r)n -1}/r]where…

Q: First City Bank pays 8 percent simple interest on its savings account balances, whereas Second City…

A: In simple interest there is interest on orginal amount only and there is no interest on interest…

Q: Suzy Q buys stock on 1/1/2011 for ____________ per share, paying annual dividends of $27. On…

A: We need to use annual rate of return formula to calculate buy price of stock.

Q: If you could only have one piece of information to help you understand the discount rate for…

A: When evaluating a project with a different systematic risk than the firm overall, understanding the…

Q: 13.00% rate of return on this equity investment. What is the maximum price you would be willing to…

A: The constant growth model is a stock valuation method used in finance to determine a stock's…

Q: A 2-year maturity bond with face value of $1,000 makes annual coupon payments of $88 and is selling…

A: To calculate the rate of return (yield to maturity) on a bond, you can use the following…

Q: You are considering the purchase of one of two machines used in your manufacturing plant. Machine A…

Q: Sunk costs) A young couple has made a nonrefundable deposit of the first month's rent (equal to…

A: Sunken cost are costs that have already incurred and payment has been made already made.

Q: Living Expenses: Assume reasonable values for your living expenses. (You may adjust these numbers to…

A: In the given question, we have basic living expenses. Apart from the expenses mentioned above, you…

Q: Indigo Corporation has 4,000 shares of 7%, $101 par value preferred stock outstanding at December…

A: Cumulative Preference dividend refers to the distribution of preference dividend of previous years…

Q: You are set to receive an annual payment of $10,900 per year for the next 15 years. Assume the…

A: First we need to use future value of ordinary annuity( payment due at end of period) formula to…

Q: A pension fund manager is considering three mutual funds. The first in a stock fund The second is a…

A: Here, Expected Return E(R )Standard Deviation Stock Fund (S)28%39%Bond Fund (B)20%26%Risk Free…

Q: Suppose Goodyear Tire and Rubber Company has an equity cost of capital of 7.6%, a debt cost of…

A: The Weighted Average Cost of Capital (WACC), sometimes referred to as the Composite Cost of Capital…

Q: what is the dollar portion of your monthly mortgage payment that is designated to cover the UFMIP?

A: First let us determine the value of the insurance.

Q: An annuity has $159 beginning of month deposits for 10 years with a rate of interest of 6%…

A: An annuity due is a condition where the contribution is made at beginning of the period for a…

Q: What is the advantage of selecting the “Only Create Connection" option when importing data?

A: The "Only Create Connection" option in data import typically refers to importing data into a data…

Q: Rank the following goods, according to how much their present price responds to expected future…

A: In economics good is defined as the product where the individual or consumer fulfils their desire or…

Q: An investor is considering the purchase of an existing suburban office building approximately five…

A: As per the given information:To determine:The estimated value for this property.The estimated…

Q: Suppose you expect to receive periodic payments of $1,500 at the end of 3, 5, 7, and 10 years from…

A: Given information,Discount rate: Payment in period 3, 5, 7 and 10: To calculate,Present value of the…

Q: Casper Landsten-Thirty Days Later. Casper Landsten once again has $1.1 million (or its Swiss franc…

A: Covered interest arbitrage is an arbitrage strategy by using the interest rate differentials to…

Q: Consider the following financial information and answer the questions that follow: Sales Costs…

A: Cash flows refer to the movement of money in and out of a business or investment over a specific…

Question

Consider a portfolio of equity and fixed-income (debt) with expected returns of 13% and 8%, and standard deviations of 20% and 12%, respectively. ρE,D = 0.3.

What are the weights on debt for the minimum variance portfolio (MVP)?

Group of answer choices

24%

18%

32%

82%

Expert Solution

This question has been solved!

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

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1: Formula

VIEW

Step 2: Calculation

VIEW

Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps with 4 images

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?
Suppose the risk-free rate is 5.1 percent and the market portfolio has an expected return of 11.8 percent. The market portfolio has a variance of .0472. Portfolio Z has a correlation coefficient with the market of .37 and a variance of .3375 According to the capital asset pricing model, what is the expected return on Portfolio Z?
What is the total risk of portfolio as per Sharpe's Single Index Model if standard deviation of market is 20 % , beta of portfolio is 1.27, unsystematic risk in variance term of the portfolio is 107 a. 752.16 b. 400 c. 107 d. 626
Assume that the following data available for the portfolio, calculate the expected return,variance and standard deviation of the portfolio given stock A accounts for 45% and stockB accounts for 55% of your portfolio? A BExpected return 12.5% 18.5%Standard Deviation of return 15% 20%Correlation of coefficient (p) 0
Assume that the following data available for the portfolio, calculate the expected return, variance and standard deviation of the portfolio given stock A accounts for 45% and stock B accounts for 55% of your portfolio? A B Expected return 12.5% 18.5% Standard Deviation of return 15% 20% Correlation of coefficient (p) 0.4
assume that the following data available for the portfolio, calculate the expected return, variance and standard deviation of the portfolio given stock A account for 45% an stock B account for 55% of you portfolio? A B Expexted return 12.5% 18.5% standard deviation of return 15% 20% correlation of cofficient(p) 0.4
Consider the following information on a portfolio of three stocks: State of Economy Probability of State of Economy Stock A Rate of Return Stock B Rate of Return Stock C Rate of Return Boom.13.02.32.50 Normal.55.10.22.20 Bust .32.16.21.35 If your portfolio is invested 40 percent each in A and B and 20 percent in C, what is the portfolio's expected return, the variance, and the standard deviation? Note: Do not round intermediate calculations. Round your variance answer to 5 decimal places, e.g., 16161. Enter your other answers as a percent rounded to 2 decimal places, e. g., 32.16. If the expected T-bill rate is 4.25 percent, what is the expected risk premium on the portfolio? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.
Assume that the following data available for the portfolio, calculate the expected return, variance and standard deviation of the portfolio given stock A accounts for 45% and stock B accounts for 55% of your portfolio? (4 marks) A B Expected return 12.5% 18.5% Standard Deviation of return 15% 20% Correlation of coefficient (p) 0.4
Suppose Stock A has an expected return of 18% and a variance of 0.17, while Stock B has an expected return of 11% and a variance of 0.056. The covariance between Stocks A and B is -0.075. What is the expected return and standard deviation of a portfolio with 60% in A and 40% in B?
Consider two stocks, Stock D, with an expected return of 13 percent and a standard deviation of 30 percent, and Stock I, an international company, with an expected return of 16 percent and a standard deviation of 41 percent. The correlation between the two stocks is 0.4. What is the weight of stock D in the minimum variance portfolio?
Suppose CAPM is true. You are considering investing in an equally weighted portfolio of two stocks, A and B. The betas of these stocks to the market factor are 1.10 and 0.80, respectively. The total return volatilities of stocks A and B are σA=0.20 and σB=0.18, and the standard deviation of the factor’s return is 0.15. 1.b. What is the portfolio’s systematic risk (stated as a variance)? 1.c. What is your portfolio’s total risk (stated as a variance), assuming the idiosyncratic risks of the stocks A and B are uncorrelated? Answer: 1a) 0.95 1b) systematic risk 0.0203 1c) total risk 0.0181 Can anyone help to double confirm the answers? plus question part c seems to be wrong but I don't know why.
Minimum Variance Portfolio: The expected return (ER) for Stock A is 45% and the expected return for Stock B is 32% while the standard deviation (SD) for A is 37% and the standard deviation for B is 29%. The CORR(A,B) equals 0.2. The minimum variance portfolio STANDARD DEVIATION is: