Utilizing the information below on 2 recently purchased stocks, compute the risk of the portfolio for the different levels of correlation between the 2 securities: Stock A B Expected Return 0.14 0.17 Std Dev of returns 0.11 0.11 Proportion invested 0.35 0.65 Correlation coefficient 1 0.4 0.1 0 -0.4 -1

Utilizing the information below on 2 recently purchased stocks, compute the risk of the portfolio for the different levels of correlation between the 2 securities: Stock A B Expected Return 0.14 0.17 Std Dev of returns 0.11 0.11 Proportion invested 0.35 0.65 Correlation coefficient 1 0.4 0.1 0 -0.4 -1

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 6P

See similar textbooks

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?
From the following information, calculate covariance between stocks A and B and expected return and risk of a portfolio in which A and B are equally weighted.Which stock would be recommend if investment in individual stock is to be made? Justify answer using numerical calculations. Stock A Stock B Expected return 24% 35% Standard deviation 12% 18% Coefficient of correlation 0.65 0.65
From the following information, calculate covariance between stocks A and B and expected return and risk of a portfolio in which A and B are equally weighted.Which stock would be best recommend if investment in individual stock is to be made? Justify the answer using numerical calculations. Stock A Stock B Expected return 24% 35% Standard deviation 12% 18% Coefficient of correlation 0.65
For the above shares if the expected inter correlations are given as follows: Investment in RM millions Weight Correlation Petronas 23 ? 0.15(P,M) Maxis 47 ? 0.25(M,B) Berjaya 40 ? 0.35(B,P) d) Compute Weights e) Compute the expected portfolio return and f) Expected portfolio risk g) Portfolio Sharpe ratio
Ahmed observed the following data of two stocks as shown in the below table. Which stock do you advise Ahmed to select according to the required rate of return? And explain why? Stock A Stock B Market Standard Deviation Return 30% 30% 22% Correlation Coefficient between A & M -30% Correlation Coefficient between B & M 30% Expected Market Return 11% Risk-Free rate of return 5%
The following questions are based on the given information from table of probabilitydistributions of returns on investment individual shares and portfolio below:Table 3: Probability distributions of returns on investment for individual shares and portfolio. State ofEconomy Probabilityof theStates Return onShare A(rA) Return onShare B(rB) Return on Portfolio AB(rAB)1 0.20 15% -5% 5%2 0.20 -5% 15% 5%3 0.20 5% 25% 15%4 0.20 35% 5% 20%5 0.20 25% 35% 30% Given: By using the above information, demonstrate the rate of risk (variance and standarddeviation) for each of:(i) Share A (ii) Share B (iii) Portfolio A and B
QG. The following information is available about the stocks of two companies A and B: Stock A Stock B Expected Return (%) Probability -5 12 15 20 0.05 0.55 0.35 0.05 Expected Return (%) Probability 5 15 18 20 0.05 0.65 0.20 0.10 Stock Standard Deviation of Returns (%) A B 25 35 The coefficient of correlation between the returns on A and B is 0.05. A portfolio is constructed by allocating the funds between A and B in the ratio of 2:3. Calculate the expected return on the portfolio. b. Calculate the portfolio risk.
A portfolio consists of two stocks: Stock Expected Return Standard Deviation Weight Stock 1 10% 15% 0.30 Stock 2 13% 20% ??? The correlation between the two stocks’ return is 0.50 (a) Calculate the expected return and standard deviation of the portfolio. Expected Return: Standard Deviation: b) (i) Briefly explain, in general, when there would be “benefits of diversification” (for any portfolio of two securities). (ii) Describe whether the above portfolio would exhibit “benefits of diversification” (and why). [No calculations are required.] (c) Show your calculations re: whether the above portfolio exhibits “benefits of diversification”and indicate whether it does/doesn’t (and why).
RISK AND RETURN: Stock A and Stock B have the following distribution of rates of return:State of the economy Probability Stock A returns Stock B returnsRecession 0.10 -20% 30%Normal 0.60 10 20Boom 0.30 70 50a. What are the expected returns and standard deviations of these two shares?b. As an investment analyst with Gold Coast Securities Ltd, which of these stocks wouldyou recommend to a risk avoider investor?
PLEASE EXPLAIN HOW ANSWERS WERE FOUND Using the data in the following table,calculate the volatility (standard deviation) of a portfolio that 54% is invested in stock A and 46% in stock B.
Suppose that the index model for stocks A and B is estimated from excess returns with the following results:RA = 3% + .7RM + eARB = −2% + 1.2RM + eBσM = 20%; R-squareA = .20; R-squareB = .12What is the covariance between each stock and the market index?
The following information describes the expected return and risk relationship for the stocks of two of WAH’s competitors. Stock X 12.0% 20% 1.3 Stock Y 9.0 15 0.7 Market Index 10.0 12 1.0 Risk-free rate 5.0 Using only the data shown in the preceding table: Draw and label a graph showing the security market line, and position Stocks X and Y relative to it. Compute the alphas both for Stock X and for Stock Y. Show your work. Assume that the risk-free rate increases to 7 percent, with the other data in the preceding matrix remaining unchanged. Select the stock providing the higher expected risk adjusted return and justify your selection. Show your calculations.