Take the US and JP assets we saw in class. What is the volatility of a portfolio with w1=40% in the US asset and w2=60% in the JP asset? It's equal to ___% (answer a number with one decimal, e.g., 12.3. In the example in class it was 14.7)

Take the US and JP assets we saw in class. What is the volatility of a portfolio with w1=40% in the US asset and w2=60% in the JP asset? It's equal to ___% (answer a number with one decimal, e.g., 12.3. In the example in class it was 14.7)

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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Suppose that you have the following utility function: U=E(r) – ½ Aσ2 and A=3 Suppose that you have $10 million to invest for one year and you want to invest that money into ETFs tracking the S&P 500 (US) and S&P/TSX 60 (Canada) index, which are often used as proxies for the US and Canadian stock markets, respectively, and the Canadian one-year T-bill. Assume that the interest rate of the one-year T-bill is 0.35% per annum. You have found two ETFs that you are interested in. From a set of their historical data between 2001 and 2019, you have estimated the annual expected returns, standard deviations, and covariance as follows: ETFUS : E(r)= 0.070584 0.173687 ETFCDA : E(r)= 0.073763 0.16816 Covariance between ETFUS and ETFCDA = 0.02397 Answer the following questions using Excel: What is the optimal portfolio of ETFUS and ETFCDA? Also submit an Excel file to show your work.
Suppose that you have the following utility function: U=E(r) – ½ Aσ2 and A=3 Suppose that you have $10 million to invest for one year and you want to invest that money into ETFs tracking the S&P 500 (US) and S&P/TSX 60 (Canada) index, which are often used as proxies for the US and Canadian stock markets, respectively, and the Canadian one-year T-bill. Assume that the interest rate of the one-year T-bill is 0.35% per annum. You have found two ETFs that you are interested in. From a set of their historical data between 2001 and 2019, you have estimated the annual expected returns, standard deviations, and covariance as follows: ETFUS : E(r)= 0.070584 0.173687 ETFCDA : E(r)= 0.073763 0.16816 Covariance between ETFUS and ETFCDA = 0.02397 Answer the following questions using Excel: Draw the opportunity set offered by these two securities (with increments of 0.01 in weight). Hint: In Excel, calculate the portfolio expected return and…
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Suppose two asset returns are described by a 1-factor model = 2% + 0.6f + ej r2= 2% + 0.6f+ e2 where the volatility of fis 30% and the volatility of e and ez is 20%. What is the covariance of r and r2? (Nearest 0.0001)
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Consider the expected return and standard deviation of the following two assets: Asset 1: E[r1]=0.1 and σ1=0.2 Asset 2: E[r2]=0.3 and σ2=0.4 (a) Draw (e.g. with Excel) the set of achievable portfolios in mean-standard deviation space for the cases: (i) ρ12= -1, (ii) ρ12=0. (b) Suppose ρ12=-1. Which portfolio has the minimal variance? What is the variance and expected return of that portfolio? (c) Derive the formula for the variance of a portfolio with four assets.

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