Q1) UPS, a delivery services company, has a beta of 1.1, and Wal-Mart has a beta of 0.7. The risk-free rate of interest is 4% and the market risk premium is 7%. What is the expected return on a portfolio with 30% of its money in UPS and the rest in Wal-Mart? Q2) IBM’s σ = 0.22; Dell’s σ = 0.13. The correlation between Dell and IBM is 0.32, and the weights are 50% each. Find the portfolio volatility (standard deviation). If the weights are now 30 % and 70 % for Dell and IBM respectively, how would the volatility of portfolio change? Briefly justify your answer.

Q1) UPS, a delivery services company, has a beta of 1.1, and Wal-Mart has a beta of 0.7. The risk-free rate of interest is 4% and the market risk premium is 7%. What is the expected return on a portfolio with 30% of its money in UPS and the rest in Wal-Mart? Q2) IBM’s σ = 0.22; Dell’s σ = 0.13. The correlation between Dell and IBM is 0.32, and the weights are 50% each. Find the portfolio volatility (standard deviation). If the weights are now 30 % and 70 % for Dell and IBM respectively, how would the volatility of portfolio change? Briefly justify your answer.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 3Q: Security A has an expected return of 7%, a standard deviation of returns of 35%, a correlation...

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