Problem 13-9 Returns and Variances (LO1, 2) Consider the following information: Probability of State of State of Economy Boom Bust Economy 0.60 0.40 Variance a. What is the expected return on an equally weighted portfolio of these three stocks? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Expected return b. What is the variance of a portfolio invested 15% each in A and B and 70% in C? (Do not round intermediate calculations. Round the final answer to 6 decimal places.) Rate of Return if State Occurs Stock B Stock C 0.18 0.36 0.07 -0.05 Stock A 0.09 0.15 21.00 % 0.122985

Problem 13-9 Returns and Variances (LO1, 2) Consider the following information: Probability of State of State of Economy Boom Bust Economy 0.60 0.40 Variance a. What is the expected return on an equally weighted portfolio of these three stocks? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Expected return b. What is the variance of a portfolio invested 15% each in A and B and 70% in C? (Do not round intermediate calculations. Round the final answer to 6 decimal places.) Rate of Return if State Occurs Stock B Stock C 0.18 0.36 0.07 -0.05 Stock A 0.09 0.15 21.00 % 0.122985

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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IBM AMZN E(R) 0.07 0.11 Standard Deviation0.10 0.18 Correlation0.45 Suppose you have the above data on IBM and Amazon, compute the expected return and the standard deviation of an equally weighted portfolio invested in the two securitiesis there a diversification benefit? Please show your work and round to at least 3 decimal places
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Consider the following information: State of Probability of Economy State of Economy 15 45 30 .10 Stock A Stock B Boom 32 42 Good 19 13 Poor -.05 -08 Bust -16 -,28 -09 Your portfolio is invested 30 percent each in A and C, and 40 percent in B. What is the standard deviation of this portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. Do not include a percent sign with your answer.) Numeric Response **** Rate of Return if State Occurs wwwww Stock C 33 12 -.06
Question A You are given the following data on two stocks (A and B): Stock A Stock BExpected return 10% 12%Variance 0.04 0.09You are unsure about the correlation of the two stocks. What is the highest possible variance for an equally-weighted portfolio? (Hint: think about which assumption on the correlation leads to the highest portfolio variance) Group of answer choices 0.0625 0.0535 0.0650 0.0400 Full explain this question and text typing work only We should answer our question within 2 hours takes more time then we will reduce Rating Dont ignore this line
QUESTION 2 The following table contains data on the returns of stock A and stock B from 2021 to 2024: Year 2021 2022 2023 2024 Return on stock A 6 8 10 12 Return on stock B 13 10 14 11 1. Compute the mean return on stock A and the mean return on stock B; 2. Compute the variance of the return on stock A and the variance of the return on stock B; 8. Compute the standard deviation of the return on stock A and the standard deviation of the return on stock B; 4. Compute the coefficient of variation of the return on stock A and stock B; 5. Compute RRC for stock A and stock B (Hint: RRC = Mean Return/Standard Deviation); 6. Would you invest in Stock A or Stock B? Why?
Refer to the table below: 3 Doors, Inc. Down Co. Expected return, E(R) Standard deviation, o Correlation 15% 10% 30 18 0.39 Using the Information provided on the two stocks in the table above, find the expected return and standard deviation on the minimum variance portfolio. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Expected return % Standard deviation %
Problem 5 Assume that you manage a risky portfolio with an expected rate of return of 18% and a standard deviation of 28%. The T-bill rate (risk-free rate) is 7%. Your client chooses to invest 70% in the risky portfolio in your fund and 30% in a T-bill money market fund. We assume that investors use mean-variance utility: U = E(r) – 0.5 x Aa?, where E(r) is the expected return, A is the risk aversion coefficient and o? is the variance of returns. a) What is the expected value and standard deviation of the rate of return on your client's portfolio? b) What is the reward-to-volatility ratio (Sharpe ratio) of your risky portfolio? What is the reward-to-volatility ratio (Sharpe ratio) of your client's risky portfolio? Comment on the relationship between these two Sharpe ratio calculated and explain the intuition behind. c) Draw the Capital Allocation Line (CAL) of your portfolio on an expected return- standard deviation diagram. What is the slope of the CAL? Show the position of your…
Consider the following portfolio of assets: Loan Weight 1 0.30 2 0.70 Expected returni ம σ2 13% 11% 9.06% 82.0% P12=-0.87 8.72% 76.0% 012-75.0% What is the variance of the portfolio (round to two decimals)? Note: a^2 denotes the square of a. For example, 2^2 = 4, 3^2=9 (0.3)^2*(82.0%) + (0.7)^2*(76.0%) + (0.3) (0.7)(-0.87) (9.06%) (8.72%) = 30.19 (0.3)^2 (82.0%) + (0.7)^2*(76.0%) + 2(0.3) (0.7)(-0.87) (9.06 %) (8.72%) = 15.75 (0.3)^2*(82.0%) + (0.7)^2*(76.0%) + [(0.3) (0.7)]^2 (-0.87) (9.06%) (8.72%) = 41.59 (0.3) (82.0%) + (0.7) (76.0%) + 2(0.3) (0.7)(-0.87) (9.06 %) (8.72%) = 48.93
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Consider the following information: Probability of State of State of Economy Book Bust Economy 0.55 Variance Rate of Return if State Occurs Stock A Stock B 0.06 0.14 0.10 0.02 a. What is the expected return on an equally weighted portfolio of these three stocks? (Do not round intermediat Round the final answer to 2 decimal places.) Expected return b. What is the variance of a portfolio invested 25% each in A and B and 50% in C? (Do not round intermediate calc the final answer to 6 decimal places.) 10.65% Stock C 0.34 -0.07

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