Question 14 Security F has an expected return of 10 percent and a standard deviation of 43 percent per year. Security G has an expected return of 15 percent and a standard deviation of 62 percent per year. a. What is the expected return on a portfolio composed of 30 percent of Security F and 70 percent of Security G? b. If the correlation between the returns of Security F and Security G is 25, what is the standard deviation of the portfolio described in part (a)?

Question 14 Security F has an expected return of 10 percent and a standard deviation of 43 percent per year. Security G has an expected return of 15 percent and a standard deviation of 62 percent per year. a. What is the expected return on a portfolio composed of 30 percent of Security F and 70 percent of Security G? b. If the correlation between the returns of Security F and Security G is 25, what is the standard deviation of the portfolio described in part (a)?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 13P

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Question Fourteen You are given the following data for four portfolios over a recent 10-year period: a) b) c) d) Portfolio 1 2 3 4 Risk Free Market Annual Return% Standard Deviation % 9 12 10 14 10 15 12 17 6 13 Rank these portfolios using the Sharpe Measure. Rank these portfolios using the Treynor Measure. Rank these portfolios using the Jensen Measure 11 Explain any differences that you observe in the rankings. Portfolio Beta 1.15 1.20 1.50 1.45
Question 14 If the simple CAPM is valid and all portfolios are priced correctly, which of the situations below is possible? Consider each situation independently. and assume the rísk-free rate is 2.5%. A) Portfolio Expected Return Beta A 17.5% 1.5 Market 12.5% 1.0 B) Portfolio Expected Return Standard Deviation A 8.5% 18.0% Market 10.0% 24.0% Portfolio Expected Return 13.5% 10.0% Beta A 1.2 Market 1.0 D) Portfolio Expected Return Beta A 7.5% 0.6 Market 10.0% 1.0 Option D Option A Option C Option B
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Assume that you are given the following historical returns for the Market and Security J. Also assume that the expected risk-free rate for the coming year is 4.0 percent, while the expected market risk premium is 15.0 percent. Given this information, determine the required rate of return for Security J for the coming year, using CAPM. Year 1 2 O21.20% 3 4 5 6 O22.34% O 23.49% O24.63% O24.10% Market 10.00% 12.00% 16.00% 14.00% 12.00% 10.00% Security J 12.00% 14.00% 18.00% 22.00% 18.00% 14.00%
1. Given the following summary statistics, Mean S.D. 1.235 0.997 Asset A 0.52 Asset B. 0.44 (a) If the correlation between the two financial series is 0.25. What are the optimal portfolio weights to minimize risk? (b) What are the expected return and standard deviation of the optimal port- folio? (c) Compute the 1% Value-at-Risk for the next 5 days (d) Compute the expected shortfall
Security F has an expected return of 10 percent and a standard deviation of 43 percent per year. Security G has an expected return of 15 percent and a standard deviation of 62 percent per year. Required: (a) What is the expected return on a portfolio composed of 30 percent of Security F and 70 percent of Security G? (b) If the correlation between the returns of Security F and Security G is .25, what is the standard deviation of the portfolio described in part (a)?
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Portfolio Expected return Standard deviation Q 7.8% 10.5% R 10.0% 14.0% S 4.6% 5.0% T 11.7% 18.5% U 6.2% 7.5% (Q1) For each portfolio, calculate the risk premium per unit of risk (Sharpe ratio) that you expect to receive. Assume that the risk-free rate is 3.0%. (Q2) Using answers from Q1, which of these five portfolios is most likely to be the market portfolio and explain why. (200 words maximum)
Question 2 The expected returns and standard deviation of returns for two securities are as follows: Security Z Security Y Expected Return 15% 35% Standard Deviation 20% 40% The correlation between the returns is +0.25. a) Calculate the expected return and standard deviation for the following portfolios: i) All in Z ii) 0.75 in Z and 0.25 in Y iii) 0.5 in Z and 0.5 in Y iv) 0.25 in Z and 0.75 in Y v) All in Y b) Draw the mean-standard deviation frontier. c) Which portfolios might not be held by an investor who likes high expected return and low standard deviation?
Portfolio Expected return Standard deviation Q 7.8% 10.5% R 10.0% 14.0% S 4.6% 5.0% T 11.7% 18.5% U 6.2% 7.5% What is the minimum level of risk that would be necessary for an investment to earn 7.0%? What is the composition of the portfolio along the Capital Market Line (CML) that will generate that expected return? Rf= 3%