urgent plzzzzzzz Exercice 2_An investor can choose between two securities T1 and T2, he also has the possibility tobuild up a P by dividing the amount he wishes to invest between the two securities .The investor anticipates the evolution of the securities for the future period from themathematical expectation : E, and the standard deviation o; (or the variance v,), withi = 1,2. The covariance between the two securities is also a criteria used by theinvestor: Cov12 = P1,2.01. 02. The statistics show the following relationships : E, < E2and o, < 02. The portfolio P consists of the combination of the two securities in theproportions X1 and X2.1. The investor cannot borrow/take a loan, specify the relationship between X, and X2.2. Calculate the mathematical expectation of the portfolio Ep, rate of return.3. Calculate the risk of the portfolio (The variance Vp, and the standard deviation Op) by distinguishing beteween the différents possible situations, linked to thedegree of dependence between the securities: Cov12 = +1; Cov12 = -1;Cov12 = 0.4. In the general case where -1 < Cov12 < +1 express the relationship betweenthe expected return and the risk of the portfolio E, = f(V,)5. Explain the concept of an efficient frontier. Identify the portion of the curve thatcorresponds to the efficient frontier in the graph in question 8.6. Analyze the benefits of diversification.7. Show that the variance of the portfolio reaches a minimum, whenV1- 01.02. P1,2X,V, + V2 - 2.01. 02. P1,28. Numerical application :0, = 6%E = 2%02 = 14% E, = 10%What will be the proportions X, and X2 that minimize the risk of the portfolio,when P12 = -1; P1,2 = -0.5; P1,2 = 0; P1,2 = 0.5; P1,2 = +1?

As per protocol, allowed to answer three subpart and post the remaining in the next submission.

Answered: n two securities T, and T2, he al nount…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

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Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 16P

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3) i) Calculate the average returns, variance and standard deviation for three securities X, Y and Z that have performed as follows. Returns % Year X Y Z 1 11 36 -3 2 6 -7 0 3 -8 21 5 4 28 -12 9 5 13 43 5 ii) Is there any basis for preferring one of these securities over the others? iii) Calculate the covariances between X, Y and Z.
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?
An investor wishes to contruct a portfolio consisting of security 1 and security 2. the expected return on the two securities are E(R1) = 0.08 And E(R2) = 0.12 and the standard deviation 1 = 0.04 and Standard deviation 2 = 0.06. the correlation coefficient between thier returns is P1,2 = -0.5. Investor is free to choose the investment proportions W1 And W2 only to requirment that w1+w2=1 and both w1 and w2 are positive.There is no limit to the number of portfolios that meet thses requirements, since there is no limit to the number of proportions that sum to 1. Therefore a representative selection of values is considered w1: 0, 0.2, 0.4, 0.6, 0.8, and 1
Stocks A B and C display the following parameters: Expected Return A 15% Variance 9%2 Expected Return B 20% Variance 16%2 Expected Return C 25% Variance 4%2 If a rational investor has to choose two securities between the above, what would be his choice? (Hint: Calculate Coefficient of Variation)
Mf1. Question: 1 (Assume that two securities, A and B, constitute the market portfolio, their proportions and variances are 0.39, 160, and 0.61, 340, respectively. The covariance of the two securities is 190. Estimate the systematic risk (beta) of the two securities. Note that the covariance of security-/ with the market portfolio is simply the weighted average of the covariances of security-i with all the securities included in the market portfolio.
Suppose you observe the following situation on two securities:Security Beta Expected Return Pete Corp. 0.8 0.12 Repete Corp. 1.1 0.16 Assume these two securities are correctly priced. Based on the CAPM, what is the return on the market?
Consider two securities, A and B, whose standard deviations of returns and betas are given below: Security A Security B Standard deviation 15% 25% Beta 1.30 0.75 Which security will have the higher risk premium? Question 20 options: A) Security A B) Security B
Consider two securities, A and B, whose standard deviations of returns and betas are given below: Security A Security B Standard deviation 15% 25% Beta 1.30 0.75 Which security will have the higher risk premium? Security A or B?
Assume that security returns are generated by the single-index model,Ri = αi + βiRM + eiwhere Ri is the excess return for security i and RM is the market’s excess return. The risk-free rate is 2%. Suppose also that there are three securities A, B, and C, characterized by the following data: Security βi E(Ri) σ(ei) A 0.7 7 % 20 % B 0.9 9 6 C 1.1 11 15 a. If σM = 16%, calculate the variance of returns of securities A, B, and C. b. Now assume that there are an infinite number of assets with return characteristics identical to those of A, B, and C, respectively. What will be the mean and variance of excess returns for securities A, B, and C? (Enter the variance answers as a percent squared and mean as a percentage. Do not round intermediate calculations. Round your answers to the nearest whole number.)
Assume that security returns are generated by the single-index model, Ri = αi + βiRM + ei where Ri is the excess return for security i and RM is the market’s excess return. The risk-free rate is 3%. Suppose also that there are three securities A, B, and C, characterized by the following data: Security βi E(Ri) σ(ei) A 1.4 14 % 23 % B 1.6 16 14 C 1.8 18 17 a. If σM = 22%, calculate the variance of returns of securities A, B, and C. b. Now assume that there are an infinite number of assets with return characteristics identical to those of A, B, and C, respectively. What will be the mean and variance of excess returns for securities A, B, and C? (Enter the variance answers as a percent squared and mean as a percentage. Do not round intermediate calculations. Round your answers to the nearest whole number.)
(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)]
Exercise 2: if the covariance of a stock A with the market Mis 0.15 and the standard deviation of the market returns is 36%,compute the beta of A.

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n two securities T, and T2, he al nount he wishes to invest betw. olution of the securities for the and the standard deviation o (