You are going to invest in Asset J and Asset S. Asset J has an expected return of 10.8 percent and a standard deviation of 51.8 percent. Asset S has an expected return of 7.8 percent and a standard deviation of 16.8 percent. The correlation between the two assets is 0.50. What are the standard deviation and expected return of the minimum variance portfolio?

You are going to invest in Asset J and Asset S. Asset J has an expected return of 10.8 percent and a standard deviation of 51.8 percent. Asset S has an expected return of 7.8 percent and a standard deviation of 16.8 percent. The correlation between the two assets is 0.50. What are the standard deviation and expected return of the minimum variance portfolio?

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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Mean-variance expected utility is given by Eu = e-, where e is expected return, v is the variance of the portfolio and tis risk tolerance. Suppose an investor has risk-loving preferences. What can we say about the value of t? Select one: Ot1 O. t>0 O t=0
Assume I am holding a portfolio of two risky assets with standard deviations of 1. Assume also that I am holding the minimum variance portfolio of these two assets. I do not know the correlation of these assets but I do know that it's not equal to one. Which of the below statements is true based on the information above? O Portfolio's standard deviation is equal to 1/2. Portfolio's return is equal to 1/2. O Portfolio weights of the two assets are equal to 1/2. None of the above statements is true. Portfolio's Sharpe ratio is equal to 1/2.
Use the following information: E[rXOM] = 15.6%, standard deviationyOM = 15.9% %3D E[IMSI=29.7%, standard deviationMS = 35.2% Correlation of returns: PXOM.MS = 0.139, r=10% If the optimal amount to invest in the first asset (w) is 0.43, what is the variance of the risky portfolio when w=0.43? (write in decimal format using 5 decimal places)
Assuming that the rates of return associated with a given asset investment are normally distributed; that the expected return, r, is 18.7%; and that the coefficient of variation, CV, is 1.88, answer the following questions: a. Find the standard deviation of returns, sigma Subscript rσr. b. Calculate the range of expected return outcomes associated with the following probabilities of occurrence: (1) 68%, (2) 95%, (3) 99%.
1. Determine the expected return and the variance of the portfolio formed by the two assets S₁, S₂ with weights ₁ = 0.6, x2 = 0.4. The assets returns are described by the following scheme: scenario W1 2لا W3 probability 0.1 0.4 0.5 T1 -20% 0% 20% 12 -10% 20% 40%
Asset K has an expected return of 10 percent and a standard deviation of 28 percent. Asset L has an expected return of 7 percent and a standard deviation of 18 percent. The correlation between the assets is .40. What are the expected return and standard deviation of the minimum variance portfolio?
PLEASE DO THIS IN EXCEL
Consider the information for assets A, B, and C below: Probability Return on A 0.2 0.4 0.4 State Boom Average Bust 0.3 0.2 0.1 Return on B Return on C 0.05 9.15 0.2 0.1 0.25 0.3 Consider Portfolio (Y) comprising 60% Asset A and 40% Asset C. What is the variance of portfolio Y™?
Consider the following two assets: Asset Expected return Standard deviation of returns 1 18% 30% 2 8% 10% The returns on the two assets are perfectly negatively correlated (i.e. coefficient of -1). Calculate the proportions of assets 1 and 2 that generate a portfolio with a standard deviation of zero. What is the expected return of that portfolio?
A single mispriced asset has an alpha a = 3.0%, a beta ẞ = 1, and unsystematic risk σ² = 9%. The market risk premium is 5.0% and the market's standard deviation is 0.1. What is the information ratio of the mispriced asset? In constructing an optimal allocation between this mispriced asset and the market portfolio, what proportion of your investment would you place in the mispriced asset? Oa. 0.1; 6.67% O b. 0.33; 6.67% O c. 0.33; 6.90% O d. 0.1; 66.67% O e. 0.1; 6.90%
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?
Portfolios that offer the highest expected return for a given variance (or standard deviation) are known as efficient portfolios. O true false

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