calculation in Eq. 11.9.d. Explain why the portfolio has a lower volatility than the average volatility of the two stocks.a. What is theEnter the returYearPortfoliob. Based on yThe average rThe volatility oc. Show that (calculation in EData tableYearStock AStock B(Click on the following icon in order to copy its contents into a spreadsheet.)2010- 1%12%20116%32%Print20126%3%2013- 3%- 3%—Donereturns of the two stocks, and (ii) the volatility of th20144%- 4%The average aThe average annual return for stock B is%. (Round to two decimal places.)The (weighted) average of the average returns of the two stocks is%. (Round to two decimal places.)201514%22%volatility of the Using the data in the following table, consider a portfolio that maintains a 60% weight on stock A and a 40% weight on stock B.a. What is the return each year of this portfolio?b. Based on your results from part (a), compute the average return and volatility of the portfolio.c. Show that (i) the average return of the portfolio is equal to the (weighted) average of the average returns of the two stocks, and (ii) the volatility of the portfolio equals the same result as from thecalculation in Eq. 11.9.d. Explain why the portfolio has a lower volatility than the average volatility of the two stocks.a. What is the return each year of this portfolio?Enter the return of this portfolio for each year in the table below: (Round to two decimal places.)Year2012Portfolio%2010%2011%b. Based on your results from part (a), compute the average return and volatility of the portfolio.The average return of the portfolio is%. (Round to two decimal places.)2013%2014%2015%The volatility of the portfolio is%. (Round to two decimal places.)c. Show that (i) the average return of the portfolio is equal to the (weighted) average of the average returns of the two stocks, and (ii) the volatility of the portfolio equals the same result as from thecalculation in Eq. 11.9.The average annual return for stock A is%. (Round to two decimal places.)The average annual return for stock B is%. (Round to two decimal places.)The (weighted) average of the average returns of the two stocks is %. (Round to two decimal places.)

A Portfolio is combination of different tradable securities. Creating portfolio reduces…

d. Explain why the portfolio has a lower volatility than the average volatility of the two stocks. a. What is the Enter the retur Year Portfolio b. Based on y The average r The volatility o c. Show that ( calculation in E The average a Data table (Click on the following icon in order to copy its contents into a spreadsheet.) 2011 6% 32% Year Stock A Stock B 2010 - 1% 12% Print 2012 6% 3% 2013 - 3% - 3% Done 2014 4% - 4% 2015 14% 22% - X volatility of the

d. Explain why the portfolio has a lower volatility than the average volatility of the two stocks. a. What is the Enter the retur Year Portfolio b. Based on y The average r The volatility o c. Show that ( calculation in E The average a Data table (Click on the following icon in order to copy its contents into a spreadsheet.) 2011 6% 32% Year Stock A Stock B 2010 - 1% 12% Print 2012 6% 3% 2013 - 3% - 3% Done 2014 4% - 4% 2015 14% 22% - X volatility of the

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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Similar questions

Consider the following information: State Probability Stock A Stock B Stock C Boom 0.32 0.17 -0.11 -0.06 Bust 0.68 -0.03 -0.01 0.23 What is the expected return of a portfolio that has invested $16,157 in Stock A, $19,654 in Stock B, and $9,659 in Stock C? (Hint: calculate weights of each stock first). Enter the answer with 4 decimals (e.g. 0.1234).
Using the data in the following table, and the fact that the correlation of A and B is 0.48, calculate the volatility (standard deviation) of a portfolio that is 70% invested in stock A and 30% invested in stock B. (Click on the following icon in order to copy its contents into a spreadsheet.) Year 2008 2009 2010 2011 2012 2013 Realized Returns Stock A - 10% 20% 5% - 5% 2% 9% Stock B 21% 30% 7% - 3% - 8% 25% The standard deviation of the portfolio is %. (Round to two decimal places.)
6-13) You are considering an investment in either individual stocks or a portfolio of stocks. The two stocks you are researching, stocks A and B, have the following historical returns: Year rA rB 2009 -20.00% -5.00% 2010 42.00 15.00 2011 20.00 -13.00 2012 -8.00 50.00 2013 25.00 12.00 a. Calculate the average rate of return for each stock during the 5-year period. b. Suppose you had held a portfolio consisting of 50% of Stock A and 50% of Stock B. What would have been the realized rate of return on the portfolio in each year? What would have been the average return on the portfolio during this period? c. Calculate the standard deviation of returns for each stock and for the portfolio. d. If you are a risk-averse investor, then, assuming these are your only choices, would you prefer to hold Stock A, Stock B, or the portfolio? Why?
Suppose you are given the following information about 2 stocks, what is the return standard deviation of a portfolio weighted 55% in stock A and 45% in stock B? E(RA)=16% E(RB)=8% σA=22% σB=12% σA,B=−0.003696 Enter rate in decimal form, rounded to 4th digit, as in "0.1234"
Suppose you are given the following information about 2 stocks, what is the expected return of a portfolio weighted 55% in stock A and 45% in stock B? E(RA)=16% E(RB)=8% σA=22% σB=12% σA,B=−0.003696 Enter rate in decimal form, rounded to 4th digit, as in "0.1234"
4. Use the following information to answer the questions below: Day KLCI Stock A Stock B Return Return Return January February March 15% 10% 15% 8% 5% 7% 6% 2% 3% April May -2% -3% -8% -14% -5% -5% Calculate expected return and standard deviation for both stocks. ii. Find out the correlation between Stock A and Stock B, calculate portfolio risk and return based on following combination: i. a. 70% invested in Stock A, 30% in Stock B b. 50% invested in Stock A, 50% in Stock B c. 30% invested in Stock A, 70% in Stock B
Q2 - Returns on stocks X and Y are listed below: Period 1 2 3 4 5 6 7Stock X 4% -2% 5% -1% 10% 7% 12%Stock Y -3% 7% 4% 2% 2% 8% -3% Consider a portfolio of 10% stock X and 90% stock Y. What is the mean of portfolio returns? Please specify your answer in decimal terms and round your answer to the nearest thousandth (e.g., enter 12.3 percent as 0.123).
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 $3000 invested in Walmart stock?
Suppose all possible investment opportunities in the world are limited to the five stocks listed in the following table. What are the market portfolio weights? (Click on the following icon O in order to copy its contents into a spreadsheet.) Number of Shares Outstanding (millions) Stock Price/Share ($) A 8.43 10 В 19.15 12 C 5.94 46.68 1 E 42.87 ..... Enter the percentage that each stock makes up of the total portfolio: (Round to two decimal places.) Stock % of Total (portfolio weight) A % В % E % 20
Fill in the missing information in the following table. Assume that Portfolio AB is 40 percent invested in Stock A. (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Year 2015 2016 2017 2018 2019 Average return Standard deviation Answer is complete but not entirely correct. Annual Returns on Stocks A and B Stock A Stock B 19.0 -32.0 42.0 18.0 30.0 15.40 56.45 11.0 33.0 -13.0 24.0 17.0 14.40 34.74 % % % % % % % % % % % % % % Portfolio AB 15.80 -6.00 20.00 20.40 24.80 15.00 24.32 % % % % % % %
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
Stocks A and B have the following returns: (Click on the following icon in order to copy its contents into a spreadsheet.) 123 45 Stock A 0.09 0.07 0.13 -0.01 0.09 Stock B 0.05 0.01 0.06 0.02 -0.04 a. What are the expected returns of the two stocks? b. What are the standard deviations of the returns of the two stocks? c. If their correlation is 0.42, what is the expected return and standard deviation of a portfolio of 60% stock A and 40% stock B?

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