You are constructing a simple portfolio using two stocks A and B. Both have the same expected return of 12%. The standard deviation of A's return is 20% and the standard deviation of B's return is 30%; the correlation of their return is 50%. How will you allocate your investment between these two stocks to minimize the risk of your portfolio?
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- Your client is shocked at how much risk Blandy stock has and would like to reduce the level of risk. You suggest that the client sell 25% of the Blandy stock and create a portfolio with 75% Blandy stock and 25% in the high-risk Gourmange stock. How do you suppose the client will react to replacing some of the Blandy stock with high-risk stock? Show the client what the proposed portfolio return would have been in each year of the sample. Then calculate the average return and standard deviation using the portfolios annual returns. How does the risk of this two-stock portfolio compare with the risk of the individual stocks if they were held in isolation?You have observed the following returns over time: Assume that the risk-free rate is 6% and the market risk premium is 5%. What are the betas of Stocks X and Y? What are the required rates of return on Stocks X and Y? What is the required rate of return on a portfolio consisting of 80% of Stock X and 20% of Stock Y?An analyst has modeled the stock of a company using the Fama-French three-factor model. The market return is 10%, the return on the SMB portfolio (rSMB) is 3.2%, and the return on the HML portfolio (rHML) is 4.8%. If ai = 0, bi = 1.2, ci = 20.4, and di = 1.3, what is the stock’s predicted return?
- An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 18% and a standard deviation of return of 20%. Stock B has an expected return of 14% and a standard deviation of return of 5%. The correlation coefficient between the returns of A and B is .50. The risk-free rate of return is 10%. The proportion of the optimal risky portfolio that should be invested in stock A isAn investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 21% and a standard deviation of return of 39%. Stock B has an expected return of 14% and a standard deviation of return of 20%. The correlation coefficient between the returns of A and B is .4. The risk-free rate of return is 5%. what is the standard deviation of returns on the optimal risky portfolio is ____?An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 21% and a standard deviation of return of 39%. Stock B has an expected return of 14% and a standard deviation of return of 20%. The correlation coefficient between the returns of A and B is .4. The risk-free rate of return is 5%. The expected return on the optimal risky portfolio is approximately ____?____. Using the risk and return profile calculated in Q10 and Q11 (standard deviation of the optimal risky portfolio is 21.4%), what is the percentage weight that you need to invest in the optimal risky portfolio if you want your complete portfolio to achieve 12% return? ___?___
- An investor can design a risky portfolio based on two stocks, A and B. The standard deviation of return on stock A is 20%, while the standard deviation on stock B is 15%. The correlation coefficient between the returns on A and B is 0%. The rate of return for stocks A and B is 20 and 10 respectively. The expected return on the minimum-variance portfolio is approximately _________.An investor can design a risky portfolio based on two stocks, A and B. The standard deviation of return on stock A is 24%, while the standard deviation on stock B is 14%. The correlation coefficient between the returns on A and B is .35. The expected return on stock A is 25%, while on stock B it is 11%. The proportion of the minimum-variance portfolio that would be invested in stock B is approximatelyAn investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 26% and a standard deviation of return of 34%. Stock B has an expected return of 20% and a standard deviation of return of 39%. The correlation coefficient between the returns on A and B is 0.56. How much should an investor put in stock B if he requires expected return of 23.35% on the risky portfolio?
- You form a complete portfolio by investing 30% of your portfolio in a risky portfolio that has an expected rate of return of 9% and a standard deviation of 19%, and the rest in T-bill with a 2% rate. What is the standard deviation of your complete portfolio? Enter your answer as a decimal number, rounded to three decimal places.If your portfolio includes 35 percent of X, 40 percent of Y and 25 percent of Z, answer the following questions: (a) Calculate the portfolio expected return. (b) Calculate the variance and the standard deviation of the portfolio. (c) If the expected T-bill rate is 3.80 percent, calculate the expected risk premium on the portfolio. (d) If the market index fund has the same expected return as your portfolio, without considering any transaction cost, would you consider selling your portfolio and investing the market index fund instead? Explain your thoughts.You are considering investing $1,000 in a T-bill that pays a rate of return of 0.06 and a risky portfolio, P, constructed with 2 risky securities, X and Y. The weights of X and Y in P are 0.70 and 0.30, respectively. X has an expected rate of return of 0.14 and a variance of 0.01, and Y has an expected rate of return of 0.10 and a variance of 0.0081. If you want to form a portfolio with an expected rate of return of 0.11, what percentages of your money must you invest in the T-bill, X, and Y, respectively if you keep X and Y in the same proportions to each other as in portfolio P?