two-security portfolio, depends upon theThe diversification of unsystema Tisk, using aAB. Thecorrelation is done through calculation of correlation coefficient of two securities (PAcorrelation that exists between the returns of those two securities. The quantification ofvalue of correlation ranges between -1 to 1; it can be interpreted as follows:If PAB= 1, No unsystematic risk can be diversified.If PABIf PAR= 0, No correlation exists between the returns of Security A and Security B.Illustration 12: The returns of Security of Wipro and Security of Infosys for the past six years aregiven below:Year20032004200520062007= -1, All unsystematic risks can be diversified.Security of Wipro Return (%)9531216Calculate the risk and return of portfolio consisting.Security of Infosys Return (%)10-612915

Let us denote the security of Wipro return by "X "and security of Infosys return by "Y". Data given…

Illustration 12: The returns of Security of Wipro and Security of Infosys for the past six years are given below: Year 2003 2004 2005 2006 2007 Security of Wipro Return (%) 9 5 3 12 16 Calculate the risk and return of portfolio consisting. Security of Infosys Return (%) 10 -6 12 9 rity B. 15

Illustration 12: The returns of Security of Wipro and Security of Infosys for the past six years are given below: Year 2003 2004 2005 2006 2007 Security of Wipro Return (%) 9 5 3 12 16 Calculate the risk and return of portfolio consisting. Security of Infosys Return (%) 10 -6 12 9 rity B. 15

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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Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

Question

two-security portfolio, depends upon the
The diversification of unsystema Tisk, using a
AB. The
correlation is done through calculation of correlation coefficient of two securities (PA
correlation that exists between the returns of those two securities. The quantification of
value of correlation ranges between -1 to 1; it can be interpreted as follows:
If PAB= 1, No unsystematic risk can be diversified.
If PAB
If PAR= 0, No correlation exists between the returns of Security A and Security B.
Illustration 12: The returns of Security of Wipro and Security of Infosys for the past six years are
given below:
Year
2003
2004
2005
2006
2007
= -1, All unsystematic risks can be diversified.
Security of Wipro Return (%)
9
5
3
12
16
Calculate the risk and return of portfolio consisting.
Security of Infosys Return (%)
10
-6
12
9
15

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Problem 9-27 Asset Allocation (LG9-2, LG9-5) Annual and Average Returns for Stocks, Bonds, and T-Bills, 1950 to 2017 You have a portfolio with an asset allocation of 39 percent stocks, 40 percent long-term Treasury bonds, and 21 percent T-bills. Use these weights and the returns given in the above table to compute the return of the portfolio in the year 2010 and each year since. Then compute the average annual return and standard deviation of the portfolio. Note: Do not round intermediate calculations. Round your answers to 2 decimal places.
2. Assuming the following: Average Return (Risky Portfolio) 3.86% Standard Dev (Risky Portfolio) 10.56% Average Risk Free Rate 2.18% Return on Risk Free Asset Avg 4.15% Using the formula: E(rc)=rf + y* (E(rp) - rf) Solve for: 1. % of Risky Assets (y): 2. % of Risk Free Assets (1-y): Note: You wish to generate a 7% return for your complete portfolio E(rc)
Exercice 5 ( Answer question 7 to 9) The expected return on treasury bills E(RF)= 4% Calculate the expected return E(.) for the market portfolio, the FGL security and the SDL Calculate the variance and standard deviation for the market portfolio, FGL security and SDL Calculate the covariance between the market portfolio and the FGL security, and the covariance between the market portfolio and the SDL Calculate the correlation coefficient between the market portfolio and the FGL security, and the correlation coefficient between the market portfolio and the SDL security. Calculate the beta of FGL stock relative to the market portfolio with two different methods. Calculate the beta of the SDL stock relative to the market portfolio with two different Calculate the expected return of the Pfl portfolio composed of 70% FGL stock and 30% SDL stock, what is the beta of this portfolio? Using CAPM assess the performance of FGL and SDL securities, Are they overvalued or undervalued? Which of…
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