Consider the characteristics of the following three stocks Standard Deviation Thumb Devices Air Comfort Sport Garb Expected Return 14% 11 11 22% 19 18 The correlation between Thumb Devices and Air Comfort is -0.15. The correlation between Thumb Devices and Sport Garb is -0.20. The correlation between Air Comfort and Sport Garb is 0.81. Select only two stocks for your portfolio based on low correlation and low risk.

Consider the characteristics of the following three stocks Standard Deviation Thumb Devices Air Comfort Sport Garb Expected Return 14% 11 11 22% 19 18 The correlation between Thumb Devices and Air Comfort is -0.15. The correlation between Thumb Devices and Sport Garb is -0.20. The correlation between Air Comfort and Sport Garb is 0.81. Select only two stocks for your portfolio based on low correlation and low risk.

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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Stock A has a correlation with the market of 0.53. Assuming that the standard deviation of returns for Stock A is 24.0% and that the standard deviation of returns for the market is 10.0%, what is beta for stock A? A 1.31 B. 1.27 C. 0.17 D. 0.22
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?
Following is information for the required returns and standard deviations of returns for A, B, and C. The correlation coefficients for each pair also are shown below in a matrix. Which is the portfolio you will recommend AB, AC, or BC, and why? A B C Required Rate of return 7% 10% 20% Standard Deviation 33% 54% 90% Coefficient A,B 0.16 Coefficient A,C 0.19 Coefficient B,C 0.17
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.
The following are estimates for two stocks. Firm- Specific Expected Standard Stock Return Beta Deviation A 14% 0.90 30% B 21 1.40 42 The market index has a standard deviation of 20% and the risk-free rate is 7%. Required: a. What are the standard deviations of stocks A and B? b. Suppose that we were to construct a portfolio with proportions: Stock A Stock B T-bills 0.30 0.45 0.25 Compute the expected return, beta, nonsystematic standard deviation, and standard deviation of the portfolio.
Stocks A and B have the following probability distributions of expected future returns: a. Calculate the expected rate of return, B, for Stock B (A = 12.50%.) Do not round intermediate calculations. Round your answer to two decimal places. % b. Calculate the standard deviation of expected returns, GA, for Stock A (σ = 20.90%.) Do not round intermediate calculations. Round your answer to two decimal places. % Now calculate the coefficient of variation for Stock B. Do not round intermediate calculations. Round your answer to two decimal places. Is it possible that most investors might regard Stock B as being less risky than Stock A? I. If Stock B is more highly correlated with the market than A, then it might have a lower beta than Stock A, and hence be less risky in a portfolio sense. II. If Stock B is more highly correlated with the market than A, then it might have the same beta as Stock A, and hence be just as risky in a portfolio sense. III. If Stock B is less highly correlated with…
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
Give typing answer with explanation and conclusion
What are the expected return and the standard deviation for the CoR Stock? CoR Stock I Probability Rate of Scenario of Scenario Return Worst Case 0.10 -20% Poor Case 0.20 -5% Most Likely 0.40 1% Good Case 0.20 5% Best Case 0.10 30%
Consider the following information on a portfolio of three stocks: State of Economy Probability of State of Economy Stock A Rate of Return Stock B Rate of Return Stock C Rate of Return Boom.13.02.32.50 Normal.55.10.22.20 Bust .32.16.21.35 If your portfolio is invested 40 percent each in A and B and 20 percent in C, what is the portfolio's expected return, the variance, and the standard deviation? Note: Do not round intermediate calculations. Round your variance answer to 5 decimal places, e.g., 16161. Enter your other answers as a percent rounded to 2 decimal places, e. g., 32.16. If the expected T-bill rate is 4.25 percent, what is the expected risk premium on the portfolio? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.
Consider the following expected returns, volatilities, and correlations: Stock Duke Energy Microsoft Wal-Mart Expected Standard Correlation with Correlation with Correlation with Return Duke Energy Deviation 14% 6% 44% 24% 23% 14% 1.0 -1.0 0.0 Microsoft -1.0 1.0 0.7 Wal-Mart 0.0 0.7 1.0 a) Consider a portfolio consisting of only Duke Energy and Microsoft. What is the percentage of your investment (portfolio weight) that you would place in Duke Energy stock to achieve a risk-free investment. b) What are the expected return and volatility of a portfolio that consists of a long position of $10,000 in Wal-Mart and a short position of $2000 in Microsoft? c) What are the expected return and platility of a portfolio that has $3000 invested in Duke Energy, $4000 invested in Microsoft, and $3000 invested in Walmart stock?
Utilizing the information below on 2 recently purchased stocks, compute the risk of the portfolio for the different levels of correlation between the 2 securities: Stock A B Expected Return 0.14 0.17 Std Dev of returns 0.11 0.11 Proportion invested 0.35 0.65 Correlation coefficient 1 0.4 0.1 0 -0.4 -1

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