You are currently considering in investing Rs.1.2 million in equity investment portfolio. Your analysis reveals that equity stock of the following three companies are suitable options for your investment. Company P 25 R 20 22 26 Expected retum (%) Standard deviation (%) Correlation coefficient; PQ QR PR 30 24 -0.5 +0.4 +0.6 (b) Assume you prefer a portfolio consisting of two stocks, each with an equal amount of investment. Calculate expected retums and standard deviation of all possible two-stock portfolios.

You are currently considering in investing Rs.1.2 million in equity investment portfolio. Your analysis reveals that equity stock of the following three companies are suitable options for your investment. Company P 25 R 20 22 26 Expected retum (%) Standard deviation (%) Correlation coefficient; PQ QR PR 30 24 -0.5 +0.4 +0.6 (b) Assume you prefer a portfolio consisting of two stocks, each with an equal amount of investment. Calculate expected retums and standard deviation of all possible two-stock portfolios.

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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Consider the following information about three stocks: State of Economy Probability of State of Economy Rate of Return If State Occurs Stock A Stock B Stock C Boom.25.13.29.60 Normal .60.08.11.13 Bust.15.02.18-.45 a-1. If your portfolio is invested 40 percent each in A and B and 20 percent in C, what is the portfolio expected return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a-2. What is the variance? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161.) a-3. What is the standard deviation? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. If the expected T-bill rate is 3.70 percent, what is the expected risk premium on the portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e .g., 32.16.) c-1. If the expected inflation rate is 3.30…
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