An investor can design a risky portfolio based on two stocks, X and Y. Stock X has an expected return of 13% and a standard deviation of return of 15%. Stock Y has an expected return of 16% and a standard deviation of return of 19%. The correlation coefficient between the returns of X and Y is 0.15. The risk-free rate of return is 3%. How much does the investor need to invest in each stock to create the optimal portfolio? O Wx-40% and Wy=60% Wx-45% and Wy=55% Wx-50% and Wy=50% Wx-55% and Wy=45% O Wx-60% and Wy=40%

An investor can design a risky portfolio based on two stocks, X and Y. Stock X has an expected return of 13% and a standard deviation of return of 15%. Stock Y has an expected return of 16% and a standard deviation of return of 19%. The correlation coefficient between the returns of X and Y is 0.15. The risk-free rate of return is 3%. How much does the investor need to invest in each stock to create the optimal portfolio? O Wx-40% and Wy=60% Wx-45% and Wy=55% Wx-50% and Wy=50% Wx-55% and Wy=45% O Wx-60% and Wy=40%

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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You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a beta of 1.25 and an expected return of 15%. The other stock has an expected return of 21%. The total portfolio is equally as risky as the market (i.e.Bp=1). What is the beta for the other stock in your portfolio? What is the expected return of the risk-free asset? What is the expected return of the market? What is the expected return of your portfolio?
Consider the single factor APT. Portfolio A has a beta of 1.5 and an expected return of 20 %. Portfolio B has a beta of 0.7 and an expected return of 16%. The risk - free rate of return is 8%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio and a long position in portfolio
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An investor can design a risky portfolio based on two stocks, A and B. The standard deviation of return on stock A is 25% while the standard deviation on stock B is 15%. The correlation coefficient between the return on A and B is 0.40. What is the standard deviation of return on the minimum variance portfolio? Do not enter % in the answer box. For example, if your answer is 0.12345 or 12.345% then enter as 12.35 in the answer box.
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(a) Determine the expected return of security X (b) To reduce the systematic risk of the portfolio, Anna is considering 3 securities to add to the portfolio. Security A has a beta of 0, security B has a beta of 0.5 and Security C has a beta of -0.3. Discuss which security will be most effective in reducing the portfolio’s systematic risk? How would portfolio expected return change (higher or lower) if you add this security?
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1. Suppose you have n risky assets you can combine in a portfolio. Each risky asset has an expected return of 8% and a standard deviation of 30%. The risky assets are uncorrelated with each other. (a) Consider an equally weighted portfolio of 2 of these securities. What is its expected return? What will its standard deviation be? (b) Consider an equally weighted portfolio of 30 of these securities. What is its expected return? What will its standard deviation be? (c) Suppose we let the number of these securities increase without bound. That is, n→ ∞o. What happens to the standard deviation of an equally weighted portfolio of these securities as the number of assets in the portfolio becomes extremely large? What will the riskless rate be in this case, and why? -int IDE
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