The return on Samsung stock has a standard deviation of 40% and the return on Toyota stock has a standard deviation of 21%. Their covariance is 0.0336. Part 1 If you invest 80% in Samsung and 20% in Toyota, what is the variance of the portfolio?

Q: You are creating a portfolio of two stocks. The first one has a standard deviation of 20% and the…

A: Standard deviation of portfolio is calculated as follows:-SDp =whereSDp = standard deviation of…

Q: Consider the following information about three stocks: State of Probability of state of economy…

A: To evaluate the risk of a portfolio, we start by calculating the expected return and standard…

Q: Consider the following information on a portfolio of three stocks: State of Probability of Stock A…

A: The expected return on the portfolio can be found by adding the portfolio returns after multiplying…

Q: The price of Oman Flour mills share went up from 485 baisa to 880 baisa in 2016, further went up to…

A: Return can be calculated by 2 means one is geometric return and athematic return

Q: Suppose you have a portfolio consisting of two assets, A and B. Stock A has an expected return of…

A: Portfolio variance = w12σ12 + w22σ22 + 2w1w2Cov1,2Where:w1 = the portfolio weight of the first…

Q: The following table shows risk and return measures for Coca-Cola and Intel. Stock Expected Return…

A: ParticularsExpected returnStandard deviationCoca-Cola13.60%15.40%Intel15%23%Correlation…

Q: 2. If the expected return of Apple stock is 25% and the risk-free rate is 5%. If the standard…

A: Explanation : Sharpe ratio is used for measuring the risk adjusted relative return. Sharpe ratio…

Q: 3. The correlation coefficients between pairs of stocks are as follows: Corr(W,X)=0.40,…

A: As per the given information;Correlation coefficients between pairs of stocks :

Q: The current T-bill money market rate is 3%. The following table contains the probability…

A:

Q: A portfolio has a total return of 4.5%, a standard deviation of 40%, and a beta of 0.5. The market…

A: Market return, Rm = 12%Standard deviation of market return = 20% Market's treynor measure = 0.10 We…

Q: An Investor has access to a set of N securities (where N is large). Each of them has an annual…

A: A group of financial assets such as stocks, bonds, commodities, cash, and cash equivalents, as well…

Q: 4) Your portfolio consists of two stocks. Stock X has an expected return of 8% and a standard…

A: Portfolio is a combination of various assets which are held to restrict the risk and maximize the…

Q: Using the information in the above table answer the following questions: a. What is the expected…

A: Portfolio variance measures the dispersion of returns in a portfolio of assets and quantifies the…

Q: Suppose that you have to choose an optimal portfolio from a list of n stocks. Stock i has expected…

A: Creating an optimal portfolio requires careful consideration of various factors, including your…

Q: what is the stock's predicted return

A: Market return is 10%return on the SMB portfolio (rSMB) is 2.0 return on the HML portfolio (rHML) is…

Q: Here are some historical data on the risk characteristics of Ford and Harley Davidson: Harley…

A: The standard deviation of a stock refers to the spread of the return of the stock around its average…

Q: You invest 47% of your money in Stock A and the rest in Stock B. The standard deviation of annual…

A: With standard deviation of Stock A (st.devA), standard deviation of Stock B (st.devB), weight of…

Q: Please help part a) For assests A and C only: Find the means and standard deviations for both…

A: Three different assets have been provided along with probability distribution of returns. The means…

Q: This question assumes the standard mean-variance utility function. You are investing in the S&P500…

A: An investor needs to allocate portfolio between risk free asset and the index. We have to find the…

Q: 0.25 -5% 0.50 8%

A: Note : As per the guidelines, only the first three questions will be answered. Given information :

Q: 1) Stock 1 has a standard deviation of return of 7%. Stock 2 has a standard deviation of return of…

A: Standard Deviation of Stock 1 (A)=7% Standard Deviation of Stock 2(B)= 1% Weight of stock 1(WA)=…

Q: Consider the following information: State of Probability of Economy State of Economy Boon Good Poor…

A: State of EconomyProbabilityStock 'A ReturnStock'B ReturnStock' C…

Q: Assume you wish to construct a portfolio by investing $4000 in Stock A which has a return of 6% and…

A: Expected return of a portfolio is the sum of weighted average returns of individual stocks.

Q: What is the expected return on the minimum variance portfolio created using the two stocks?

A: The minimum variance portfolio is a portfolio that has been thoughtfully put together with the goal…

Q: The standard deviation of return on stock A is 15% and the standard deviation on stock B is 15%. The…

A: The standard deviation of return on stock A = 15% The standard deviation of return on stock B = 15%…

Q: Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Company A 30% 7% 18% -22% -14% 10% 26% -10%…

A: We have to design two portfolios and then find their average return, standard deviation of return…

Q: . Suppose the index model for stocks A and B is estimated with the following results: rA = 2% +…

A: Variance is a statistical measure that quantifies the dispersion or spread of a set of data points…

Q: Consider two high-risk stocks, X and Y. The expected return on stock Y is 16%, with a standard…

A: Computation of Expected Return as follows: The expected return of the portfolio =Weight of…

Q: What is the expected return of a portfolio composed of 70% of the optimal risky portfolio and 30% of…

A: Expected return is the amount of money that an investor can expect to either gain or lose with…

Q: You have $10,000 worth of shares of Spotify. You plan to add additional $5,000 worth of Spotify's…

A: Current value of shares: $10,000Additional value of investment: $5,000Variance of the returns of…

Q: Assume that two stocks are available. The first stock (Stock A) has an expected return of 25% and a…

A: The minimum variance portfolio refers to the mix of risky assets taken in such a proportion as to…

Q: Consider the following information: State of Economy Probability of State of Economy 0.60 0.40 Boom…

A: State of economyProbabilityStock AStock BStock CBoom0.60.150.230.42Bust0.40.160.08-0.09

Q: Table 1 shows the value of a portfolio consisting of security 1 and security 2. The respective…

A: Standard deviation is a statistical measurement of deviation from the expected data. It shows market…

Q: A portfolio has a correlation of 0.40 with the overall market and produces a Sharpe Ratio of 0.2. If…

A: There are different measures which are used for the estimation of portfolio performance. One such…

Q: The probability distributions of expected returns for stocks XMX and BMX are as follows: Probability…

A: Let Pn = Probability of each state Xn = Return of XMX in each state Bn = Return of BMX in each state…

Q: Calculate the Sharpe ratio, Treynor ratio, M-squared and Jensen's alpha for a stock with an expected…

A: 1) Sharp ratio = (Return of the portfolio - Return of Risk free investment) / Standard deviation of…

Q: Suppose that you have to choose an optimal portfolio from a list of n stocks. Stock i has expected…

A: A portfolio that is created with the ideal ratio of risk to return is said to be optimum. The best…

Q: An analyst has modeled the stock of a company using the Fama-French three-factor model. The market…

A: Market return is 12% return on the SMB portfolio (rSMB) is 2.1%  return on the HML portfolio (rHML)…

Q: If your portfolio is invested 40 percent each in A and B and 20 percent in C, what is the…

A: Answer a.Weight of Stock A = 0.40Weight of Stock B = 0.40Weight of Stock C = 0.20Boom:Expected…

Q: 1. Here are some historical data on the risk characteristics of Ford and Harley Davidson. Ford…

A: Standard deviation defines the scatteredness of data from its mean value which reflects the high…

Q: onsider 2 scenarios: Boom Economy and Normal Economy. The Boom economy has 20% chance of happening,…

A: We’ll answer the first question since the exact one wasn’t specified. Please submit a new question…

Q: Consider the following information State of Probability of Economy State of Economy Rate of Return…

A: Expected return estimates the mean, or anticipated value, of the likelihood of an expected return.…

Q: Consider the following information about three stocks: Probability 0.22 State of Economy Boom Normal…

A: The portfolio is invested 40% each in A and B and 20% in C.The Risk-free rate is 3.80% and the…

Q: Table 1: Data for Mean-Variance Portfolio Optimization Stock A Stock B Stock C 2% 8% 2% 12% Return…

A: The solution requires use of excel and matrix multiplication functions embedded in excel. We also…

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.