State ofthe economyBoomBust0.050.02You MUST use 4 digits in every calculation you do in order for your answer to be the same as the one in the system.When entering your answer, round to the nearest 0.01% but do not enter the % sign. For example, if your answer is3.484% enter 3.48; if your answer is 0.12013 then enter 12.01What is the expected return of a portfolio with 20% in asset A and 80% in Asset B?What is the variance of the portfolio with 20% in asset A and 80% in Asset B?Prob. of thestate of economy0.750.25Rate of return if state occursStock AStock B0.150.02

Risk and return are essential financial principles. The term “risk” refers to the uncertainty and…

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What is the expected return of a portfolio with 20% in asset A and 80% in Asset B? What is the variance of the portfolio with 20% in asset A and 80% in Asset B?

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

State of
the economy
Boom
Bust
0.05
0.02
You MUST use 4 digits in every calculation you do in order for your answer to be the same as the one in the system.
When entering your answer, round to the nearest 0.01% but do not enter the % sign. For example, if your answer is
3.484% enter 3.48; if your answer is 0.12013 then enter 12.01
What is the expected return of a portfolio with 20% in asset A and 80% in Asset B?
What is the variance of the portfolio with 20% in asset A and 80% in Asset B?
Prob. of the
state of economy
0.75
0.25
Rate of return if state occurs
Stock A
Stock B
0.15
0.02

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Asset A has an expected return of 20% and a standard deviation of 25%. The risk free rate is 10%. What is the reward-to- variability ratio (Sharpe ratio)? O 40 O .50 O .75 O.80
Portfolios that offer the highest expected return for a given variance (or standard deviation) are known as efficient portfolios. O true false
An investment has been found to have two different IRRs, one at 14% and the other at 20%. When a required return of 17% is used, the NPV of the investment is negative. Knowing this: a. What range of required returns will generate a negative NPV? b. What range of required returns will generate a positive NPV?
An asset has normally-distributed returns, with mean of 10.6% and standard deviation of 14.8%. What is the 2% VaR (value at risk) return? Enter answer in percents.
On the expected return (Y-axis) vs. variance (X-axis) graph, investors will prefer portfolios that lie to the: 1) Southeast 2) Northeast 3) Northwest 4) Southwest
In this question, you will be asked to calculate the variance/risk of a portfolio consisting of two assets. Consider a portfolio that only consists of asset E and asset B. E has weight of 60%, and B has weight of 40%. The variance of E is about 13%, and the variance of B is about 4%. The covariance between E and B is about 0.2. What is the variance of this portfolio? 0.1492 O 0.1012 0.19 0.094
Asset X has an expected return of 6% and a variance of 0.001. Asset Y has an expected return of 12% and the same variance as X (i.e., 0.001). The returns of assets X and Y are uncorrelated, and the risk-free rate is 3%. Find the variance of the highest Sharpe ratio portfolio that can be formed of the two risky assets X and Y.
Suppose Asset A has an expected return of 10 percent and a standard deviation of 10 percent. Asset B has an expected return of 20 percent and a standard deviation of 20 percent. If the correlation between A and B is (- 1), what are the expected return and standard deviation for a portfolio comprised of 40 percent Asset A and 60 percent Asset B?

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