The investor invested in stocks and bonds to form a minimum variance portfolio. The return and standard deviation is as follows: Expected return Standard deviation Stock 14% 40% Bond 8% 30% The correlation between returns of the stock and bond is 0.06. Calculate the minimum variance portfolio's expected return. (A) The expected return of the minimum variance portfolio is 11.00%. (B) The expected return of the minimum variance portfolio is 14.28%. (C) The expected return of the minimum variance portfolio is 8.36%. (D) The expected return of the minimum variance portfolio is 10.11%.

The investor invested in stocks and bonds to form a minimum variance portfolio. The return and standard deviation is as follows: Expected return Standard deviation Stock 14% 40% Bond 8% 30% The correlation between returns of the stock and bond is 0.06. Calculate the minimum variance portfolio's expected return. (A) The expected return of the minimum variance portfolio is 11.00%. (B) The expected return of the minimum variance portfolio is 14.28%. (C) The expected return of the minimum variance portfolio is 8.36%. (D) The expected return of the minimum variance portfolio is 10.11%.

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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Your portfolio invests in the stock of two companies. Company A’s stock has a variance of 0.25, while Company B’s stock has a standard deviation of 0.30. The correlation between the two stocks is 0.40. If 30% of your portfolio is invested in Company A, and 70% in Company B, what is the standard deviation of your portfolio? A. 28.74% B. 24.96% C. 30.30% D. 28.50%
Consider two stocks, Stock D, with an expected return of 13 percent and a standard deviation of 28 percent, and Stock I, an international company, with an expected return of 16 percent and a standard deviation of 38 percent. The correlation between the two stocks is -0.1. What is the weight of stock D in the minimum variance portfolio?
Consider Microsoft Corporation (MSFT) and Meta Platforms, Inc. (META) that have returns variances of 6.25% and 3.24%, respectively. Calculate the standard deviation of portfolio returns for an equal-weighted portfolio of the two assets when their correlation of returns is 0. A. 24.71% B. 19.20% C. 15.40% D. 10.28%
Stock 1 has an expected return of 4% and a standard deviation of 38 %. Stock 2 has anexpected return of 11% and a standard deviation of 23 % . Their correlation is .17. You invest30% in stock 1 and 70% in stock 2. What is the variance of the portfolio?What is the standarddeviation of the portfolio?
Suppose we form a portfolio invested in Mercedes and BMW stocks. The two stocks are equally weighted in the portfolio. The table below displays each stock’s mean return, variance, and standard deviation, as well as their covariance. Estimate the mean and variance of this portfolio, as well as its standard deviation. Show in detail your Asset returns Mercedes BMW Mean return 1.78% -0.48% Variance 0.0456 0.0276 Standard deviation 21.35% 16.61% Covariance 0.0020
A portfolio that combines the risk-free asset and the market portfolio has an expected return of 7 percent and a standard deviation of 10 percent.The risk-free rate is 4 percent, and the expected return on the market portfolio is 12 percent. Assume the capital asset pricing model holds. Compute and justify the expected rate of return would a security earn if it had a 0.45 correlation with the market portfolio and a standard deviation of 55 percent.
8. A portfolio consists of bonds, stocks, commodities and real estates. The portfolio weightings, expected returns, variances and correlation matrix are shown below. Weight Expected Return Variance (%2) Bonds 50% 10% 15% 25% 8% 12% 20% 16% 10 30 15 20 0.1 0.3 0.4 0.6 1.0 0.2 1.0 Stocks Commodities Real Estate Correlation Matrix Bonds 1.0 -0.2 1.0 Stocks Commodities Real Estate Bonds Stocks Commodities Real Estate Calculate the standard deviation of the return of the portfolio.
Consider the following information on a portfolio of three stocks: State of Economy Probability of State of Economy Stock A Rate of Return Stock B Rate of Return Stock C Rate of Return Boom.13.02.32.50 Normal.55.10.22.20 Bust .32.16.21.35 If your portfolio is invested 40 percent each in A and B and 20 percent in C, what is the portfolio's expected return, the variance, and the standard deviation? Note: Do not round intermediate calculations. Round your variance answer to 5 decimal places, e.g., 16161. Enter your other answers as a percent rounded to 2 decimal places, e. g., 32.16. If the expected T-bill rate is 4.25 percent, what is the expected risk premium on the portfolio? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.
A person is interested in constructing a portfolio. Two stocks are being considered. Letx = percent return for an investment in stock 1, and y = percent return for an investment instock 2. The expected return and variance for stock 1 are e(x) = 8.45% and Var(x) = 25.The expected return and variance for stock 2 are e(y) = 3.20% and Var(y) = 1. Thecovariance between the returns is sxy = −3.a. what is the standard deviation for an investment in stock 1 and for an investment instock 2? Using the standard deviation as a measure of risk, which of these stocks isthe riskier investment?
The risk-free rate is 3 percent. Also, the expected return on the market portfolio is 10.5 percent.a. Calculate the expected return of your portfolio. (Hint: The expected return of a portfolio equals the weighted average of the individual stocks" expected returns, where the weights are the percentage invested in each stock.)b. Calculate the portfolio beta.c. Given the preceding information, plot the security market line on paper. Plot the stocks from your portfolio on your graph.d. From your plot in part c, which stocks appear to be your winners, and which ones appear to be your losers?e. Why should you consider your conclusion in part d to be less than certain?
Your employer has asked you to investigate the firm’s portfolio risk and return. The portfolio comprises three stocks. It is invested 50 percent in stock A, 30 percent in stock B and 20 percent in stock C. You gathered the following information: a) Determine what is the portfolio’s expected return b) Determine the portfolio’s variance and standard deviation c) Assume that the expected risk-free rate is 2.75 percent. Determine the expected risk premium on the portfolio.

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