Q2. (Show calculation)Year123456Stock A-14%-9%12%10%5%-7%دد۔Stock B-5%-2%4%-10%-12%0%-.04 167You have two stocks in your portfolio. You decide to put 30% of your money for stock A and the remaining forstock B.Please use the information above to answer the following questions.Expected Return of Portfolio (AB) = ,357 VSTDEV of Portfolio (AB)=57523X7523Sx = .1989Sy = 2628(₁1089 × .3) + (10658x.7) = 07523

The expected portfolio return is the important measure that evaluates the projected gain or loss…

Answered: Expected Return of Portfolio (AB) =…

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Expected Return of Portfolio (AB) = STDEV of Portfolio (AB)=7S

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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Consider the following table which provides a comparison of the returns for a portfolio and its benchmark. Year 0 1 2 3 4 5 Return Alpha Sum Tracking Error Information Ratio Note: the numbers in red are negative b. Calculate the portfolio alpha in percentage terms c. Calculate the tracking error of the portfolio in percentage terms Portfolio Return 16% 9% -35% 22% 84% Required a. Calculate the annualised return of the portfolio and the benchmark in percentage terms d. Calculate the information ratio of the portfolio to 2 decimal places e. Determine to 2 decimal places the amount of Carhart alpha for the portfolio in percentage terms if: o the risk-free rate is 3.25%, o the return of the market is 9.20%, o the exposure to the value factor (when the premium is 3.15%) is 0.65 (ie 65%), o the exposure to the small cap factor (when the premium is 2.05%) is -0.12, and o the exposure to the momentum factor (when the premium is 46%) is 0.1. Benchmark Return 14% 7% -38% 18% 86%
As the number of stocks in a portfolio decrease, the portfolio's unsystematic risk will O A. increase O B. O C. D. increase 1 decrease / decrease / increasing decreasing increasing decreasing at a/an rate.
2) Calculate the envelope set (frontier) for the following four assets and show that the individual assets all lie within this envelope set. 123456 A B E A FOUR-ASSET PORTFOLIO PROBLEM C Variance-covariance 0.01 0.30 0.06 -0.04 0.10 0.01 0.03 0.05 0.03 0.06 0.40 0.02 D 0.05 -0.04 0.02 0.50 F Mean returns 6% 8% 10% 15%
Given the following probability distribution, what are the expected return and the standard deviation of returns for Security J? State Pi ri 1 0.5 11% 2 0.3 8% 3 0.2 5% O 9.40%; 2.04% O 8.90%; 2.34% O 7.40%; 2.94% O 8.40%; 2.64% O 7.90%; 1.74%
Is the portfolio risk the weighted average of the variance or covariance?
Suppose that there are four risky assets whose expected returns E(r) and variance- covariance matrix (S) are shown in the spreadsheet below. We also consider the portfolio weights of two portfolios x and y of risky assets (see Cells B8:E9): 1 8 Portfolio x 9 Portfolio y A FOUR-ASSET PORTFOLIO PROBLEM Variance-covariance, S 20 Portfolio variance, 21 Portfollo standard deviation o 0.10 0.01 0.03 0.05 11 Portfolio x and y statistics: Mean, variance, covariance, correlation 12 Mean, Ejr, 13 Variance, 14 Covariance() 15 Correlation P 16 17 Calculating returns of combinations of Portfolio x and Portfolio y 18 Proportion of x 19 Mean portfolio return, r 0.01 0.30 0.06 -0.04 0.20 0.20 10.50% 0.1216 0.0714 0.4540 ? ? ? 0.3 0.03 0.06 0.40 0.02 0.30 0.10 ? 0.05 0.02 0.50 0.40 0.10 0.10 0.60 Mean, Er Variance, 0.2014 Question il Question ili Mean returns E(r) ? 7% 9% 11% 20% Question i i. Write the Excel formula used to estimate the mean and variance of portfolio y in cells E12 and E13,…
You are choosing between the following portfolios. Which one do you choose? Select one: a. ASD b. JKL c. Not enough information
H Consider the three stocks in the following table. Pe represents price at time t, and Qe represents shares outstanding at time t Stock C splits two-for-one in the last period. Pe 81 41 82 lo 100 200 200 Rate of return P₁ 86 36 92 li 100 200 200 % P₂ 86 36 46 Required: Calculate the first-period rates of return on the following indexes of the three stocks: (Do not round intermediate calculations. Round your answers to 2 decimal places.) a. A market value-weighted index 2₂ 100 200 400
2. The following table gives information on the return and variance of assets A and B, whose covariance is 0.0003: A B 0} 0,0009 0,0012 E (R₂) 0,05 0,06 a. Does the portfolio (1/3 of A and 2/3 of B) dominate the portfolio (2/3 of A and 1/3 of B)? b. Does the portfolio (1/2, 1/2) belong to the efficient frontier? c. If there were the possibility of lending and borrowing at 2%, would the portfolio (1/2, 1/2) belong to the new efficient frontier?
1. The return over the risk free rate of 3.4% A. Real return B. Average return C. Risk premium D. Required return E. Inflation premium
Given the following probability distribution, what is the expected return and the standard deviation of returns for Security J? The answer choice lists expected return and standard deviation in the respective order. State 1 2 3 Pri 0.2 O 12%; 5.18% O 15%; 3.16% O 15%; 6.50% 0.6 0.2 O 20%; 5.00% 15%; 10.00% rj 10% 15 20
Consider following information on a risky portfolio, risk-free asset and the market index. What is the M2 of the risky portfolio? Risky portfolio Risk-free asset Market index Average return 8.2% 2% 6% Std. Dev. 26% 20% Residual std. dev. 10% Alpha 1.4% Beta

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