Consider a portfolio consisting of 2 assets with a fixed correlation coefficient in a Markowitz environment. If the weight of the 2 assets is varied, the expected portfolio return would be and the expected portfolio standard deviation would be ? Nonlinear, elliptical Nonlinear, circular Linear, elliptical Linear, circular Circular, elliptical All of the answers could be correct depending on the weights of the 2 stocks None of the above answers is correct

Consider a portfolio consisting of 2 assets with a fixed correlation coefficient in a Markowitz environment. If the weight of the 2 assets is varied, the expected portfolio return would be and the expected portfolio standard deviation would be ? Nonlinear, elliptical Nonlinear, circular Linear, elliptical Linear, circular Circular, elliptical All of the answers could be correct depending on the weights of the 2 stocks None of the above answers is correct

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 13QTD

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In order to create an efficient set of portfolios thru optimization using concepts from Markowitz portfolio theory, you would need to forecast only 2 variables including expected return and standard deviation or variance for the asset classes or securities in focus. True or false
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3. Consider a portfolio where equal investment is made in each of the n stocks. Thus, the proportion invested in each stock is 1/n. Prove that the portfolio variance will be: Portfolio V ariance = LAverage V ariance (1-) Average Covariance 4. By using the equation above, discuss the power and limits to diversification.
d. Diversification works only when assets are uncorrelated. multiple choice 4 True False e. Diversification reduces the portfolio beta. multiple choice 5 True False f. A portfolio of stocks, each with a beta of 1.0, will have a beta of less than 1.0 unless the returns are perfectly correlated. multiple choice 6 True False
There are two assets 1 and 2, with returns X and Y correspondingly. Return X is a random variable with mean 1 and variance 1; return Y is a random variable with mean 1 and variance 3. We know that the expectation of X*Y is equal to 0. Find the share of asset 1 in the risk-minimizing portfolio.
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2. Suppose that you have a riskfree asset and N risky assets for investment. The rate of return on the riskfree asset is r,, while the (Nx1) vector of the rate of return on the N risky assets is r, which is multivariate normal, i.e., r N(u, E). Your utility function for a portfolio that consists of the riskfree asset and the N risky asset is u(r,)=r,-=o, 2 Suppose that the sum of investment proportions on the riskfree and risky assets is one. Answer the following question. A. What is your optimal investment proportion in the risky assets? How is your investment on the riskfree asset affected by different values of 2? B. Suppose that there is only one risky asset i. Show the effects of the Sharpe ratio (4,/0, ) on the investment proportion in the risky asset.
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In the model in Example 7.9, stock 2 is not in the optimal portfolio. Use SolverTable to see whether it ever enters the optimal portfolio as its correlations with stocks 1 and 3 vary. Specifically, use a two-way SolverTable with two inputs, the correlations between stock 2 and stocks 1 and 3, each allowed to vary from 0.1 to 0.9 in increments of 0.1. Capture as outputs the three changing cells. Discuss the results. (Note: You will have to change the model slightly. For example, if you use cells B10 and C11 as the two Solver Table input cells, you will have to ensure that cells C9 and D10 change accordingly. This is easy. Just put formulas in these latter two cells.) Example 7.9 Perlman & Brothers, an investment company, intends to invest a given amount of money in three stocks. From past data, the means and standard deviations of annual returns have been estimated as shown in Table 7.7. The correlations among the annual returns on the stocks are listed in Table 7.8. The company…
which of the folowing models CANNT be applied to measure the Value-at-Risk of a cash-flow portfolio? A.Normal linear VaR B.Monte Carlo VaR C.None of the answers is correct D.Historical VaR
Question 5 Choose the correct answer for the following: (1) Which is the best measure of risk for choosing an asset which is to be held in isolation? (2) Which is the best measure for choosing an asset to be held as part of a diversified portfolio? O Variance; correlation coefficient. O Standard deviation; correlation coefficient. O Beta; variance. O Coefficient of variation; beta. O Beta; beta.