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Q5 - Summary statistics for returns on two stocks X and Y are listed below.
Mean Variance
Stock X 2.85% 0.005000
Stock Y 5.91% 0.006000
The covariance of returns on stocks X and Y is 0.002800. Consider a portfolio of 30% stock X and 70% stock Y.
What is the variance of portfolio returns?
Please round your answer to six decimal places.
Note that the correct answer will be evaluated based on the full-precision result you would obtain using Excel.
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- You plan to invest $1,000 in a corporate bond fund or in a common stock fund. The following table represents the annual return (per $1,000) of each of these investments under various economic conditions and the probability that each of those economic conditions will occur. Compute the expected return for the corporate bond and for the common stock fund. Show your calculations on excel for expected returns. Compute the standard deviation for the corporate bond fund and for the common stock fund. Would you invest in the corporate bond fund or the common stock fund? Explain. If choose to invest in the common stock fund and in (c), what do you think about the possibility of losing $999 of every $1,000 invested if there is depression. Explain.Two stocks are available. The corresponding expectedrates of return are r¯1 and r¯2; the corresponding variances and covariances areσ12, σ22, and σ12. What percentages of total investment should be invested ineach of the two stocks to minimize the total variance of the rate of return ofthe resulting portfolio? What is the mean rate of return of this portfolio?A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond, and the third is a T-bill money market fund that yields a rate of 8%. The mean and the standard deviation of the risky funds is as follows: Expected Return Standard Deviation Stock fund (S) 20% 30% Bond fund (B) 12% 15% The correlation between the fund returns is 0.10. Your client’s degree of risk aversion is A = 3.5. Given the utility function: U = E(r) - 1/2 A Sigma^2 What proportion, y, of the total investment should be invested in the tangency portfolio so that your client can maximize his/her expected utility? What is the expected value and standard deviation of the rate of return on your client’s optimized portfolio?
- A drug company is considering investing $100 million today to bring a weight loss pill to the market. At the end of one year, the firm will know the payoff; there is a 0.50 probability that the pill will sell at a high price and generate $37 million per year of profit forever and a 0.50 probability that the pill will sell at a low price and generate $I million per year of profit forever. The interest rate is 10%. Suppose the firm decides to wait one year to determine whether the pill will sell at a high or low price. The firm will not invest if it learns that the pill will sell at a low price. What is the net present value of waiting one year to make the investment?O $88 millionO$122.72 millionO $201.22 millionO $64.5 millionJohn has an investment budget of £20,000. In addition, he has borrowed £10,000 at a fixed interest rate of 5%. He decides to invest all available funds in a portfolio of equities which has an expected rate of return of 12% and standard deviation of 20%. What is the standard deviation of the return on John’s overall investment portfolio?Need correct answer.instant upvote !! A stock will have a loss of 10.3 percent in a bad economy, a return of 10.1 percent in a normal economy, and a return of 24 percent in a hot economy. There is 25 percent probability of a bad economy, 44 percent probability of a normal economy, and 31 percent probability of a hot economy. What is the variance of the stock's returns? Multiple Choice .02450 .03266 .12779 .01633 .01225
- 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 $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)Suppose that you have a stock with a market beta of zero. This means that: a) the stock has no risk for an investor when held alone. b) the stock adds no risk when held in a market portfolio. c) the stock´s returns must have a standard deviation of zero. d) the expected return on this stock must be zero or negative. e) this stock´s returns must be uncorrelated with the market returns. pls show procedure, thanksYou are considering a $500,000 investment in the fast-food industry and have narrowed your choice to either a McDonald’s or a Penn Station East Coast Subs franchise. McDonald’s indicates that, based on the location where you are proposing to open a new restaurant, there is a 25 percent probability that aggregate 10-year profits (net of the initial investment) will be $16 million, a 50 percent probability that profits will be $8 million, and a 25 percent probability that profits will be −$1.6 million. The aggregate 10-year profit projections (net of the initial investment) for a Penn Station East Coast Subs franchise is $48 million with a 2.5 percent probability, $8 million with a 95 percent probability, and −$48 million with a 2.5 percent probability. Considering both the risk and expected profitability of these two investment opportunities, which is the better investment? Explain carefully.
- If the economy booms, Meyer&Co. stock will have a return of 20.8 percent. If the economy goes into a recession, the stock will have a loss of 13.1 percent. The probability of a boom is 63 percent while the probability of a recession is 37 percent. What is the standard deviation of the returns on the stock? 9.29% 12.43% 13.56% 14.61% 14.61%Year Returns X Y 116% 22% 2 30 31 3-23-28 4 11 12 5 10 22 Using the returns shown above, calculate the arithmetic average returns, the variances, and the standard deviations for X and Y. (Do not round intermediate calculations. Enter your average return and standard deviation answers as a percent rounded to 2 decimal places, e.g., 32.16. Enter your variance answers rounded to 5 decimal places, e.g., 16161.)QUESTION 1 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 uncorrelated. 17.4%. 27.4%. 7.4%. 11.4%. QUESTION 2 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. Describe what happens to the standard deviation of the portfolio returns when the coefficient of correlation ρ decreases. The standard deviation of the portfolio returns decreases as the coefficient of correlation decreases. The standard deviation of the portfolio returns increases as the coefficient…
