CORPORATE FINANCE(LL)
11th Edition
ISBN: 9781260430011
Author: Ross
Publisher: MCG
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Textbook Question
Chapter 11, Problem 38QP
Minimum Variance Portfolio Assume Stocks A and 8 have the following characteristics:
| Stock | Expected Return(%) | Standard Deviation(%) |
| A | 9 | 33 |
| B | 15 | 62 |
The covariance between the re turns on the two stocks is .001.
- a. Suppose an investor holds a portfolio consisting of only Stock A and Stock B. Find the portfolio weights, XA and XB, such that the variance of her portfolio is minimized.
(Hint: Remember that the sum of the two weights must equal 1.)
- b. What is the expected return on the minimum variance portfolio?
- c. If the covariance between the returns on the two stocks is –.05, what are the minimum variance weights?
- d. What is the variance of the Portfolio in part (c)?
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Students have asked these similar questions
Stock A has a return variance (that is σ2) of 0.02. The market portfolio has a return variance of 0.03. The covariance between stock A’s return and market portfolio’s return is 0.01. Stock A has an expected return of 0.09, while the market has an expected return of 0.12. What is the expected return and standard deviation of a portfolio that is 65% invested in A and 35% invested in the market portfolio?
a.
ER = 10.1%, σ = 12.9%
b.
ER = 10.8%, σ = 16.7%
c.
ER = 10.1%, σ = 16.7%
d.
ER = 9.0%, σ = 12.9%
e.
ER = 8.5%, σ = 10.1%
Suppose CAPM is true. You are considering investing in an equally weighted
portfolio of two stocks, A and B. The betas of these stocks to the market factor are
1.10 and 0.80, respectively. The total return volatilities of stocks A and B are
σA=0.20 and σB=0.18, and the standard deviation of the factor’s return is 0.15.
1.b. What is the portfolio’s systematic risk (stated as a variance)?
1.c. What is your portfolio’s total risk (stated as a variance), assuming the
idiosyncratic risks of the stocks A and B are uncorrelated?
Answer:
1a) 0.95
1b) systematic risk 0.0203
1c) total risk 0.0181
Can anyone help to double confirm the answers? plus question part c seems to be wrong but I don't know why.
Chapter 11 Solutions
CORPORATE FINANCE(LL)
Ch. 11 - Diversifiable and Nondiversifiable Risks In broad...Ch. 11 - Systematic versus Unsystematic Risk Classify the...Ch. 11 - Expected Portfolio Returns If a portfolio has a...Ch. 11 - Diversification True or false: The most important...Ch. 11 - Portfolio Risk If a portfolio has a positive...Ch. 11 - Beta and CAPM Is it possible that a risky asset...Ch. 11 - Covariance Briefly explain why the covariance of a...Ch. 11 - Prob. 8CQCh. 11 - Prob. 9CQCh. 11 - Prob. 10CQ
Ch. 11 - Determining Portfolio Weights What are the...Ch. 11 - Portfolio Expected Return You own a portfolio that...Ch. 11 - Portfolio Expected Return You own a portfolio that...Ch. 11 - Portfolio Expected Return You have 10,000 to...Ch. 11 - Prob. 5QPCh. 11 - Calculating Returns and Standard Deviations Based...Ch. 11 - Calculating Expected Returns A portfolio is...Ch. 11 - Returns and Standard Deviations Consider the...Ch. 11 - Returns and Standard Deviations Consider the...Ch. 11 - Calculating Portfolio Betas You own a stock...Ch. 11 - Calculating Portfolio Betas You own a portfolio...Ch. 11 - Using CAPM A stock has a beta of 1.15, the...Ch. 11 - Using CAPM A stock has an expected return of 13.4...Ch. 11 - Using CAPM A stock has an expected return of 13.4...Ch. 11 - Using CAPM A stock has an expected return of 11.2...Ch. 11 - Prob. 16QPCh. 11 - Prob. 17QPCh. 11 - Reward-to-Risk Ratios Stock Y has a beta of 1.20...Ch. 11 - Prob. 19QPCh. 11 - Portfolio Returns Using information from the...Ch. 11 - Prob. 21QPCh. 11 - Portfolio Returns and Deviations Consider the...Ch. 11 - Analyzing a Portfolio You want to create a...Ch. 11 - Prob. 24QPCh. 11 - Prob. 25QPCh. 11 - Prob. 26QPCh. 11 - Prob. 27QPCh. 11 - Prob. 28QPCh. 11 - Correlation and Beta You have been provided the...Ch. 11 - CML The market portfolio has an expected return of...Ch. 11 - Beta and CAPM A portfolio that combines the...Ch. 11 - Beta and CAPM Suppose the risk-free rate is 4.7...Ch. 11 - Systematic versus Unsystematic Risk Consider the...Ch. 11 - SML Suppose you observe the following situation:...Ch. 11 - Prob. 35QPCh. 11 - Prob. 36QPCh. 11 - Prob. 37QPCh. 11 - Minimum Variance Portfolio Assume Stocks A and 8...Ch. 11 - Prob. 1MCCh. 11 - Prob. 2MC
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