Security F has an expected return of 10 percent and a standard deviation of 43 percent per year. Security G has an expected return of 15 percent and a standard deviation of 62 percent per year. a. What is the expected return on a portfolio composed of 30 percent of Security F and 70 percent of Security G? b. If the correlation between the returns of Security F and Security G is .25, what is the standard deviation of the portfolio described in part (a)?

Security F has an expected return of 10 percent and a standard deviation of 43 percent per year. Security G has an expected return of 15 percent and a standard deviation of 62 percent per year. a. What is the expected return on a portfolio composed of 30 percent of Security F and 70 percent of Security G? b. If the correlation between the returns of Security F and Security G is .25, what is the standard deviation of the portfolio described in part (a)?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 13P

See similar textbooks

Similar questions

QUESTION 7 An investor wishes to construct a portfolio consisting of a 70 percent allocation to a stock index and a 30 percent allocation to a risk-free asset. The return on the risk-free asset is 4.5 percent, and the expected return on the stock index is 12 percent. Calculate the expected return on the portfolio. a. 16.50 percent b. 17.50 percent c. 14.38 percent d. 9.75 percent e. 8.25 percent
Problem 11-25 Portfolio Returns and Deviations [LO 1, 2] 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.
INV 2 -1c You are considering an investment in a portfolio P with the following expected returns in three different states of nature: Recession Steady Expansion Probability 0.10 0.55 0.35 Return on P -15% 20% 40% The risk-free rate is currently 4%, and the market portfolio M has an expected return of 16% and standard deviation of 20%, and its correlation with P is .7. c. Does portfolio P have a positive or negative alpha relative to its required return given its level of risk? Would you characterize P as a buy or sell, and why?
1. Give 3 limitations of VaR. 2. Portfolio ABZ has a daily expected return of 0.0634% and a daily standard deviation of 1.1213%. Assuming that the daily 5 percent parametric VaR is R 6 million, calculate the annual 5 percent parametric VaR for a portfolio with a market value of $ 120 million. (Assume 250 trading days in a year and give your answer in Dollars)
INV 2 -1 You are considering an investment in a portfolio P with the following expected returns in three different states of nature: Recession Steady Expansion Probability 0.10 0.55 0.35 Return on P -15% 20% 40% The risk-free rate is currently 4%, and the market portfolio M has an expected return of 16% and standard deviation of 20%, and its correlation with P is .7. Is P an efficient portfolio relative to the market?
Security F has an expected return of 10 percent and a standard deviation of 43 percent per year. Security G has an expected return of 15 percent and a standard deviation of 62 percent per year. Required: (a) What is the expected return on a portfolio composed of 30 percent of Security F and 70 percent of Security G? (b) If the correlation between the returns of Security F and Security G is .25, what is the standard deviation of the portfolio described in part (a)?
QUESTION 12 Answer the following: a) Elizabeth's Portfolio Elizabeth has decided to form a portfolio by putting 30% of her money into stock 1 and 70% into stock 2. She assumes that the expected returns will be 10% and 18%, respectively, and that the standard deviations will be 15% and 24%, respectively. Compute the standard deviation of the returns on the portfolio assuming that the two stocks' returns are perfectly positively correlated 21.3% 19.3% 29% 33% b) In a Poisson distribution, the: mean equals the standard deviation. median equals the standard deviation. mean equals the variance. None of these choices. c) Elizabeth has decided to form a portfolio by putting 30% of her money into stock 1 and 70% into stock 2. She assumes that the expected returns will be 10% and 18%, respectively, and that the standard deviations will be 15% and 24%, respectively. Find the expected mean of the portfolio. 15.6% 19% 13.5% 11%
12. Consider a portfolio with $5 million invested in Stock A and $7.5 million invested in Stock B. Stock A has an expected return of 13.5% and standard deviation of 15% while Stock B has an expected return of 8% and standard deviation of 7%. The correlation between the two stocks is 0.45. What is the monthly Value-at-Risk (VaR) at the 99% confidence level for this portfolio? Explain what this VaR represents.
N1 Consider a portfolio consisting of stocks and treasury bills. The expected return on the stocks is 25%, and the standard deviation is 30%. The expected return on the treasury bills is 1%, and treasury bills are risk free. All of these figures are annual. The portfolio's market value is $200 million and is allocated 90% to stocks and 10% to treasury bills. Determine the 1% annual VaR and the 1% weekly VaR using the analytical method.
11.2 Portfolio Expected Return You own a portfolio that has $3,100 invested in Stock A and $4,600 invested in Stock B. If the expected returns on these stocks are 9.8 percent and 12.7 percent, respectively, what is the expected return on the portfolio?
QUESTION 10 An investor wishes to construct a portfolio by borrowing 35 percent of his original wealth and investing all the money in a stock index. The return on the risk-free asset is 4.0 percent, and the expected return on the stock index is 15 percent. Calculate the expected return on the portfolio. a. 9.50 percent b. 18.25 percent c. 11.15 percent d. 15.00 percent e. 18.85 percent
Question1: A: Currently under consideration is an investment with a beta, b, of 1.50. At this time, the risk-free rate of return, RF, is 7%, and the return on the market portfolio of assets, rm, is 10%. Calculate the Required return using capm? B: An analyst predicted last year that the stock of Logistics, Inc., would offer a total return of at least 10% in the coming year. At the beginning of the year, the firm had a stock market value of $10 million. At the end of the year, it had a market value of $12 million even though it experienced a loss, or negative net income, of $2.5 million. Did the analyst’s prediction prove correct? Explain using the values for total annual return.