10.3 Refer to Exhibit 10.2. a. Construct an equal-weighted (50/50) portfolio of investments B and C. What are the expected rate of return and standard deviation of the portfolio? Explain your results. b. Construct an equal-weighted (50/50) portfolio of investments B and D. What are the expected rate of return and standard deviation of the portfolio? Explain your results.
10.3 Refer to Exhibit 10.2. a. Construct an equal-weighted (50/50) portfolio of investments B and C. What are the expected rate of return and standard deviation of the portfolio? Explain your results. b. Construct an equal-weighted (50/50) portfolio of investments B and D. What are the expected rate of return and standard deviation of the portfolio? Explain your results.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Transcribed Image Text:Economic Probability
State
of Occurrence
Very poor
Poor
Average
Good
Very good
0.10
0.20
0.40
0.20
0.10
1.00
Expected rate of return
Standard deviation
A
-10%
0
10
20
30
-
B
Rate of Return if State Occurs
C
D
AB
30%
20
10
0
-10
-25%
-5
15
35
55
15%
10
0
25
35
AC
-17.5%
-2.5
12.5
E(RAC) (0.5 x 10 % ) + (0.5 x 15 %) - 12.5%.
AD
10%
10
10
5.0
10 27.5
22.5
10 42.5 32.5
10.0% 10.0% 15.0% 12.0%
10.0% 12.5% 11.0%
11.0% 11.0% 21.9% 12.1% 0.0% 16.4% 10.1%
This is the same value as that calculated from the expected rates of
return of the two portfolio components:
2.5% Investments
5.0
and Three
Portfolios
EXHIBIT 10.2
Estimated
Returns for
Four Individual
Transcribed Image Text:10.3 Refer to Exhibit 10.2.
a. Construct an equal-weighted (50/50) portfolio of investments
B and C. What are the expected rate of return and standard
deviation of the portfolio? Explain your results.
b. Construct an equal-weighted (50/50) portfolio of investments
B and D. What are the expected rate of return and standard
deviation of the portfolio? Explain your results.
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