Consider an investor's choice of a farm unit in the Corn Belt, one in the California Central Valley, or the one in the Great Plains region. An investor added these three assets in one portfolio. The portfolio composed of equal proportions of the three investments. Use the information in the table below to answer the questions that follows (show all your work for partial credits). Investment Alternatives Corn Belt (1) Central Valley (2) Great Plains (3) Exp. Return ri =0.14 r2=0.12 r3=0.07 Std. Dev. 01=0.08 0==0.05 03=0.01 Weight in Portfolio Wi=1/3 W2=1/3 W3=1/3 Correlation Among Investment
Consider an investor's choice of a farm unit in the Corn Belt, one in the California Central Valley, or the one in the Great Plains region. An investor added these three assets in one portfolio. The portfolio composed of equal proportions of the three investments. Use the information in the table below to answer the questions that follows (show all your work for partial credits). Investment Alternatives Corn Belt (1) Central Valley (2) Great Plains (3) Exp. Return ri =0.14 r2=0.12 r3=0.07 Std. Dev. 01=0.08 0==0.05 03=0.01 Weight in Portfolio Wi=1/3 W2=1/3 W3=1/3 Correlation Among Investment
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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Question 1
Consider an investor's choice of a farm unit in the Corn Belt, one in the California Central
Valley, or the one in the Great Plains region. An investor added these three assets in one
portfolio. The portfolio composed of equal proportions of the three investments. Use the
information in the table below to answer the questions that follows (show all your work for
partial credits).
Investment Alternatives
Corn Belt (1)
Central Valley (2)
Great Plains (3)
Exp. Return
ri =0.14
r2=0.12
r3=0.07
Std. Dev.
01=0.08
02=0.05
03=0.01
Weight in Portfolio
Wi=1/3
W2=1/3
W3=1/3
Correlation Among Investment
1 and 2 (p12) = 0.30
1 and 3 (p13) = -0.40
2 and 3 (p23) = -0.10
Portfolio Data for Financial Servicing Analysis Under Risk
a. Calculate the expected return of the portfolio.
b. Calculate the variance and the standard deviation of the portfolio.
c. Calculate the variance and standard deviation of the portfolio assuming that the
correlation among the investments is all equal to 0.
d. Calculate the variance and standard deviation of the portfolio assuming that the
correlation among the investments is all equal to 1.
e. Which scenario should the investor prefer [i.e., (b.), (c.), or (d.)]? Explain your
answer.
Question 2 |
What conditions must exist for diversification to he an effective risk response? How does.
English (United States)
Is
EE Focus
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Question 1
Consider an investor's choice of a farm unit in the Corn Belt, one in the California Central
Valley, or the one in the Great Plains region. An investor added these three assets in one
portfolio. The portfolio composed of equal proportions of the three investments. Use the
information in the table below to answer the questions that follows (show all your work for
partial credits).
Investment Alternatives
Corn Belt (1)
Central Valley (2)
Great Plains (3)
Exp. Return
ri =0.14
r2=0.12
r3=0.07
Std. Dev.
01=0.08
02=0.05
03=0.01
Weight in Portfolio
Wi=1/3
W2=1/3
W3=1/3
Correlation Among Investment
1 and 2 (p12) = 0.30
1 and 3 (p13) = -0.40
2 and 3 (p23) = -0.10
Portfolio Data for Financial Servicing Analysis Under Risk
a. Calculate the expected return of the portfolio.
b. Calculate the variance and the standard deviation of the portfolio.
c. Calculate the variance and standard deviation of the portfolio assuming that the
correlation among the investments is all equal to 0.
d. Calculate the variance and standard deviation of the portfolio assuming that the
correlation among the investments is all equal to 1.
e. Which scenario should the investor prefer [i.e., (b.), (c.), or (d.)]? Explain your
answer.
Question 2 |
What conditions must exist for diversification to he an effective risk response? How does.
English (United States)
Is
EE Focus
圓
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