(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 ofdiversification" (and why). [No calculations are required.](c) Show your calculations re: whether the above portfolio exhibits “benefits ofdiversification" and indicate whether it does/doesn't (and why). 2. A portfolio consists of two stocks:StockExpected ReturnStandard DeviationWeightStock 110%15%0.30Stock 213%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:

a. given, stock expected return (r) standard deviation (σ) weight (w) stock 1 10% 15%…

2. 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:

2. 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:

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

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Q1) The covariance between stocks A and B is 0.0014, standard deviation of stock A is 0.032, and standard deviation of stock B is 0.044. Which of the following is the most appropriate to depict the risk-return characteristics of a portfolio consisting of only stocks A and B, and explain why? (Image attached as Q)
9. A portfolio is composed of two stocks, Stock A and B. The standard deviation of return for Stock A is 50% and for Stock B it is 40%. If the covariance between the returns for Stock A and Stock B is -0.04, compute the correlation coefficient between the returns for Stock A and Stock B.
A stock portfolio has the following returns under the market conditions listed below. Market Condition Probability Return Bull 0.4 $ 200 Stable 0.3 $100 Bear 0.3 - $100 Referring to Scenario 20-4, what is the EMV?
An investor has a portfolio of two assets A and B. The details are shown in the below table. Portfolio Details Asset Expectedreturn Standarddeviation Covariance (A, B) Expected Portfolio Return A 0.06 0.5 0.12 0.1 B 0.08 0.8 Which one of the following statements is NOT correct? a. The portfolio weight in asset A is -100%. b. The correlation of asset A and B’s returns is 0.3. c. The investor can benefit from a fall in the price of asset A. d. The variance of the portfolio is 2.33. e. The order of short selling is borrowing, buying, selling, and returning.
Consider the following probability distribution for stocks A and B: State Probability Return on Stock A Return on Stock B 1 0.10 10% 8% 2 0.20 13% 7% 3 0.20 12% 6% 4 0.30 14% 9% 5 0.20 15% 8% The coefficient of correlation between A and B is:
You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset: Op 1.45 1.20 0.75 1.00 Portfolio: X Y Z Market Risk-free Rp 11.00% 10.00 8.10 10.40 5.20 Information ratio Op 33.00% 28.00 18.00 23.00 0 Assume that the tracking error of Portfolio X is 9.10 percent. What is the information ratio for Portfolio X? Note: A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 4 decimal places. 02148 0
You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset: Portfolio Y Z Market Risk-free Rp 16.00% бр 32.00% 15.00 27.00 7.30 17.00 11.30 5.80 22.00 0 Bp 1.90 1.25 0.75 1.00 0 Assume that the tracking error of Portfolio X is 13.40 percent. What is the information ratio for Portfolio X? Note: A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 4 decimal places. Information ratio
Stock A and B have the following probability distributions of expected future returns: Probability A B 0.1 (20%) (46%) 0.2 7 0 0.4 15 15 0.2 23 30 0.1 47 50 What is the expected rate of return for Stock A? What is the standard deviation of returns for Stock B?
Below are standard deviations of four stocks: M, N, O and P. Stock M N O P Standard deviation 12% 20% 15% 30% 1. Which stock is the riskest? 2. Based on the risk-return tradeoff, which stock should provide the highest 3. If stock O provides a higher return than stock P, what should happen?
1. The following table presents the expected returns of three stocks and the risk free rate. в 4% Stock A 8% Expected return What is the expected return and risk on an equally weighted portfolio composed of these four assets? The standard deviation of stock A is 10% and the covariance between A and B equals 0.0045. The correlation matrix between A, B and C is: 14% 4% Correl B A 1 0.3 0.7 B 0.3 0.5 0.5 Combining stocks A and C in a portfolio in equal proportions will result in a variance of 1.95%. 0.7
2. Consider the following expected returns, volatilities, and correlations: Expected Standard Stock Return Deviation Correlation with Vital Correlation with Mital Correlation with Pital Vital 14% 6% 1.0 -1.0 0.0 Mital 44% 24% -1.0 1.0 0.7 Pital 23% 14% 0.0 0.7 1.0 a. Imagine a portfolio comprising solely of Vital and Mital. What portion of should be allocated to Vital stock to ensure a risk-free investment? your investment b. What is the portfolio's volatility when holding a $10,000 long position in Pital and a $2000 short position in Mital? wwwww c. In a market, there are two securities, Artis and Brotis. Currently, the price of Artis stands at £50. Looking ahead, the price of Artis next year will be £40 during a recession, £55 in normal economic times, and £60 in an expanding economy. The probabilities associated with recession, normal times, and expansion are 0.1, 0.8, and 0.1, respectively. Artis does not pay dividends and has a correlation of 0.8 with the market. On the other…
Portfolio theory with three assets Estimated covariances between three stocks are shown in the following table. The expected returns for the three stocks are 11% (A), 9% (B) and 4% (C), respectively A B C A 0.0225 0.0030 -0.0009 B 0.0030 0.0100 -0.0012 -0.0009 -0.0012 0.0036 Note: All returns and covariance matrix are on an annual basis A) Calculate the expected return and standard deviation of the portfolio if it is equally split between A and B B) Calculate the expected return and standard deviation of the portfolio if it is equally split between A,B and C C) Compare the portfolio in answer (a) and the portfolio in answer (b) using the sharpe ratio. Assuming the current annual risk-free rate is 3%

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