3. Stock A has an expected return of 5% and standard deviation of 10%. Stock B has an expected return of 10% and standard deviation of 15%. The correlation between the two stocks' returns is 0.70. If you wanted to form a portfolio of these two stocks and wanted that portfolio to have an expected return of 8%, what weights would you put on each stock? Show your work ("algebra"). What would be the standard deviation of this portfolio?

3. Stock A has an expected return of 5% and standard deviation of 10%. Stock B has an expected return of 10% and standard deviation of 15%. The correlation between the two stocks' returns is 0.70. If you wanted to form a portfolio of these two stocks and wanted that portfolio to have an expected return of 8%, what weights would you put on each stock? Show your work ("algebra"). What would be the standard deviation of this portfolio?

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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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.
An analyst has modeled the stock of a company using the Fama - French three - factor model. The market return is 8 %, the return on the SMB portfolio ( rSMB) is 2.8%, and the return on the HML portfolio (rHML) is 5.6 %. If ai = 0, bi = 1.2, ci = -0.4, and di = 1.3, what is the stock's predicted return? Do not round intermediate calculations. Round your answer to two decimal places. %
a. Using the data provided in problem 3, determine the return and risk for a portfolio made up of the following three stocks if you want to distribute your investment as follows: 20% in ADRE; 65% in MSFT and 15% in GOOG.b. How would the portfolio be affected if you distributed your investment in the following way: 30% in ADRE; 25% on MSFT and 45% on GOOG?c. Which of the two portfolios would a risk seeking investor prefer and why?
Please solve only part a of this question in 2 hours and get a thumbs up
There are three stocks, A, B, and C, with the following expected return, volatility, and correlation data. You are asked to generate a mean-variance portfolio, the expected return of which should be no less than 8%. What’s your optimal allocation (portfolio weights) for those three stocks?
Suppose you came up with the following calculations; Assume your utlity function is represented by U E(Rp) 1/2A\sigma_p^2 where your risk aversion parameter A = 25. What is the weight that you must invest in Stock C in order to create your Optimal Portfolio? Present result in decimals, for example, 0.78, not 78 %. Round to 4 decimals. Your Answer: Answer
We know that two stocks A and B are correctly priced by the CAPM model. For A, the expected return is 12%, and the beta is 1.5; for B, the expected return is 6%, and the beta is 0.5. Based on this information, what is the risk free rate and expected market return? Select one: A. 3%; 9% B. 3%; 6% C. 2%; 8% D. 4%; 10%
Syntex, Inc. is considering an investment in one of two common stocks. Given the information that follows, which investment is better, based on the risk (as measured by the standard deviation) and return? Common Stock A Common Stock B Probability Return Probability Return 0.25 13% 0.25 −7% 0.50 14% 0.25 7% 0.25 18% 0.25 16% 0.25 23% (Click on the icon in order to copy its contents into a spreadsheet.) Question content area bottom Part 1 a. Given the information in the table, the expected rate of return for stock A is enter your response here %. (Round to two decimal places.) Part 2 The standard deviation of stock A is enter your response here %. (Round to two decimal places.) Part 3 b. The expected rate of return for stock B is enter your response here %. (Round to two decimal places.) Part 4 The standard deviation for stock B is enter…
Suppose we form a portfolio invested in Mercedes and BMW stocks. The two stocks are equally weighted in the portfolio. The table below displays each stock’s mean return, variance, and standard deviation, as well as their covariance. Estimate the mean and variance of this portfolio, as well as its standard deviation. Show in detail your Asset returns Mercedes BMW Mean return 1.78% -0.48% Variance 0.0456 0.0276 Standard deviation 21.35% 16.61% Covariance 0.0020
The index model for stock A has been estimated with the following result: RA = 0.01 + 0.9RM + eA. If σM = 0.25 and R2A = 0.25, the standard deviation of return of stock A is:
Use the expected return-beta equation from the CAPM. What is the expected return for a stock if the risk-free rate is 4%, beta 0.9 and the expected return for the market portfolio is 6%? What is the risk-free rate if beta is 1.1, the expected return 6.3% and the expected return for the market portfolio is 6%? What is beta if the risk-free rate is 4%, the expected return 11% and the expected return for the market is 6%? What is the expected return for the market if the risk-free rate is 4%, beta 0.9 and the expected return 11%?

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