Answered: Daily Volatility< weight Portfolio…

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Daily Volatility< weight Portfolio value Correlation < Stock 1 5% 65% Stock 2 6% 25% 50 mln 0.6

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

100%

Question 1. Calculate the variance and standard deviation of a portfolio of two stocks. Question 2. Suppose the volatility of stock 2 is 16%, but the weight of stock 2 in the portfolio is 15%, will there be any effect on the standard deviation of the portfolio?

A
Daily Volatility
weight
Portfolio value
Correlation <
coefficient
Stock 1
5%
65%
Stock 2
6%
25%
50 mln
0.6
7 7

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Similar questions

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
Stock 1 has an expected return of 4% and a standard deviation of 38 %. Stock 2 has anexpected return of 11% and a standard deviation of 23 % . Their correlation is .17. You invest30% in stock 1 and 70% in stock 2. What is the variance of the portfolio?What is the standarddeviation of the portfolio?
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Calculate this please Only typed solution
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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.
2. Let random variables A and B be the monthly returns of stocks A and B, respectively. Let C be the monthly returns of Crude Oil Index (WTI). Suppose p(A,C) = correlation between A and C= 0.50 p(B,C) = correlation between B and C= -0.45 • p(A,B) = correlation between A and B = -0.15 o(A) = standard deviation of A = 0.45 o(B) = standard deviation of B = 0.75 o(C) = standard deviation of C= 0.55 Moreover, suppose you decided to form a portfolio D, which invests 60% in stock A and 40% in stock B. Let random variable D be the monthly returns of portfolio D. a. b. C. Y : Determine the covariances between (i.) A and C, (ii.) B and C, and, (iii.) A and B. Compute for the covariance between C and D. Compute for the expected standard deviation of D.
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