Question 13 of 19A portfolio consists of 40 percent Stock A and 60 percent Stock B. Stock A has a Beta of 1.2, an expected return of 0.09, and a variance of 0.10. Stock B has a Beta of 0.8, an expected return of 0.09, and a varianceof 0.07. The covariance of returns between Stocks A and B is 0.20. What is the standard deviation of the portfolio?O 0.3704O 0.3152O 0.2266O 0.2987O None of the listed choices is correct.

given, weight of A (wa) =0.6 weight of B (wb) = 0.4 vara= 0.10 varb= 0.07 covariance = 0.2

Question 13 of 19 A portfolio consists of 40 percent Stock A and 60 percent Stock B. Stock A has a Beta of 1.2, an evpected return of 0.09, and a variance of 0.10. Stock B has a Beta of 0.R, an expected return of 0.09, and a variance of 0.07. The covariance of returns between Stocks A and B is 0.20. What is the standard deviation of the portfolio? O 0.3704 O 0.3152 O 0.2266 O 0.2987 O None of the listed choices is correct.

Question 13 of 19 A portfolio consists of 40 percent Stock A and 60 percent Stock B. Stock A has a Beta of 1.2, an evpected return of 0.09, and a variance of 0.10. Stock B has a Beta of 0.R, an expected return of 0.09, and a variance of 0.07. The covariance of returns between Stocks A and B is 0.20. What is the standard deviation of the portfolio? O 0.3704 O 0.3152 O 0.2266 O 0.2987 O None of the listed choices is correct.

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 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?
None
Ch 8 Problem Sets: 2. The following are estimates for two stocks. Expected Return 13% 18 Stock A B Betal 0.8 1.2 The market index has a standard deviation of 22% and the risk-free rate is 8%. a. What are the standard deviations of stocks A and B? b. Suppose that we were to construct a portfolio with proportions: Stock 4: Stock B: T-bills: Firm-Specific Standard Deviation 30% 40 .30 .45 25 Compute the expected return, standard deviation, beta, and nonsystematic standard deviation of the portfolio.
Question 3 A portfolio consisting of 5 securities could have its beta factor computed Security % of portfolio Beta factor of A B с D E 20 10 15 20 35 security 0.90 1.25 1.10 1.15 0.70 as follows: Weighted beta factor 0.180 0.125 0.165 0.230 0.245 If the risk-free rate of return is 12% and the expected return on the market is 20%. Determine the expected return of this portfolio.
Problem 3: Suppose the market portfolio has an expected return of 10% and astandard deviation of returns of 25%. The risk-free rate is 5%. Assume that theCAPM holds.a) What is the expected return of a stock that has a beta of 2?b) If a stock has an expected return of 15% and a standard deviation ofreturns of 70%, what fraction of the stock’s variance representsidiosyncratic risk?c) What is the expected return of the “best” portfolio that has a standarddeviation of returns of 70%? That is, how high an expected return canyou get if you are willing to hold a portfolio with σp = 70%?
QUESTION 12 Use the table below to answer questions 12 through 15. What is the portfolio tracking error? O A. 81.35 basis points OB. 86.35 basis points O C. 83.35 basis points D. 80.35 basis points Month January February March April May June July August September October November December Portfolio A's Return (%) 2.15 0.89 1.15 -0.47 1.71 0.10 1.04 2.70 0.66 2.15 -1.38 -0.59 Benchmark Index Return (%) 1.65 -0.10 0.52 -0.60 0.65 0.33 2.31 1.10 1.23 2.02 -0.61 -1.20
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…
5 Assume the historical volatility of a stock on the S&P 500 is 50% and the correlation between the returns of stock is 30% A. What is the average variance of stocks on the S&P? B. What is the average covariance of the stocks? C. Consider a portfolio of S&P stocks. What is the estimated volatility of the portfolio when there 10 stocks in the portfolio? What about 20 stocks in the portfolio?
Stock A Stock B 1 0.09 0.06 2 0.05 0.01 3 0.15 0.05 4 5 -0.04 0.08 0.01 -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 0.44, what is the expected return and standard deviation of a portfolio of 59% stock A and 41% stock B?
An investor gathered the following information regarding three stocks, which are not in the market portfolio: Standard Deviation 25% 30% 23% Stock A B с The return on the market portfolio is 15% with a standard deviation of 21%, and the risk-free rate of return is 4%. Stock A's nonsystematic variance is closest to: O 0.0036 O 0.0247 Expected Return 22% 17% 19% O 0.0091 Beta 1.1 1.4 0.8
Vijay
3. Consider two perfectly correlated stocks A and B. The standard deviation of return on stock A is 10% and that of stock B is 15%. The standard deviation of the return of a portfolio that invests equally in stocks A and B is generally A. equal to 12.5% D. greater than 14% B. smaller than 12.5% C. greater than 12.5%

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