You have $400,000 invested in a well-diversified portfolio. You inherit a house that is presently worth $180,000. Consider the summary measures in the following table: Expected Return standard Deviation Inveatment Old porttolio House 131 27 16 The correlation coefficient between your portfolo and the house is 0.49. a. What is the expected return and the standard deviation for your portfolio comprising your old portfolo and the house? (Do not round intermediate calculations. Round your final answers to 2 decimal places.) Expected return Standard deviation 8.41 % 14.97 % p. Suppose you decide to sell the house and use the proceeds of $180,000 to buy risk-free T-bills that promise a 10% rate of return. Calculate the expected return and the standard deviation for the resulting portfolio. [Hint Note that the correlation coefficient between nY ASset and the risk-freeT-bills is zero.l(Do not round intermediate calculations. Round your final answers to 2 decimal places.)

You have $400,000 invested in a well-diversified portfolio. You inherit a house that is presently worth $180,000. Consider the summary measures in the following table: Expected Return standard Deviation Inveatment Old porttolio House 131 27 16 The correlation coefficient between your portfolo and the house is 0.49. a. What is the expected return and the standard deviation for your portfolio comprising your old portfolo and the house? (Do not round intermediate calculations. Round your final answers to 2 decimal places.) Expected return Standard deviation 8.41 % 14.97 % p. Suppose you decide to sell the house and use the proceeds of $180,000 to buy risk-free T-bills that promise a 10% rate of return. Calculate the expected return and the standard deviation for the resulting portfolio. [Hint Note that the correlation coefficient between nY ASset and the risk-freeT-bills is zero.l(Do not round intermediate calculations. Round your final answers to 2 decimal places.)

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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Nikul
2. An investor is evaluating a two-asset portfolio of the following two securities. Portfolio A: 75% Ooredoo and 25% Woqod Portfolio B: Investor has QAR 100,000 and will invest QAR 50,000 in Woqod Expected returns and risks: ● ● ● ● Expected Return 12.50% Woqod 10.80% The correlation between Ooredoo and Woqod is 0.72. Calculate: a. Expected return of both the portfolios Security Ooredoo Expected Risk (0) 26.40% 22.50%
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
Rahul
An investor invests 70% of his wealth in a risky asset with an expected rate of return of 0.15 and a variance of 0.04. He also places 30% of his wealth in a T-bill that pays 5%. His portfolio's expected return and standard deviation are __________ and __________, respectively. Group of answer choices 0.120; 0.14 0.087; 0.06 0.295; 0.12 0.087; 0.12 0.895; 0.11
Benefits of diversification. Sally Rogers has decided to invest her wealth equally across the following three assets: What are her expected returns and the risk from her investment i three assets? How do they compare with investing in asset M alone? Hint. Find the standard deviations of asset M and of the portfolio equally invested in assets M, N, and O. What is the expected return of investing equally in all three assets M, N, and O? % (Round to two decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) States Boom Probability 27% Asset M Return 13% 10% Normal 48% Recession 25% 1% Asset N Return 23% 15% 3% Asset O Return 1% 10% 13% X
Which of the following is correct? O A. Common stock valuation usually treats the common stock as a perpetuity. OB. The appropriate measure for risk according to the capital asset pricing model is beta. OC. The present value of a $100 perpetuity discounted at 5% is $2,000. OD. The incremental cost is the cost of making a choice defined in terms of the next best alternative that is foregone. OE. Both B and C.
c) Suppose Taneal is considering combining the two portfolios into a single portfolio. Ifshe invests 60% in Portfolio A and 40% in Portfolio B:i. Determine the return of the new portfolio ii. If the standard deviation for portfolio B was 19%, comment on the risk of the new portfolio, supported with calculations.iii. Should Taneal combine these two portfolios? Why
Suppose you are considering investing your entire portfolio in three assets A, B and C. You expect that after you invest, four possible mutually exclusive scenarios will occur, with associated returns (in %) for each of the three assets as listed below. The probability of each scenario is given below. A B C Probabilities return 0.05 0.50% -3.60% 3.60% 0.35 0.60% 2.75% 0.15% 0.45 3.66% 1.45% 0.45% 0.15 -4.80% -0.60% 6.30% Find the expected returns and standard deviations of Asset A, B & C. (HINT: the expected return is given by the probability-weighted sum of returns in each scenario. The expected standard deviation is given by the square root of the probability-weighted sum of squared deviations from the expected return.) Is there any reason to invest in Asset A given its low expected return and high standard deviation?
man.1
Sharon Smith, the financial manager for Barnett Corporation, wishes to select one of three prospective investments: X, Y, and Z. Assume that the measure of risk Sharon cares about is an asset's standard deviation. The expected returns and standard deviations of the investments are as follows: Investment Expected return Standard deviation X 17% 7% Y 17% 8% Z 17% 9% a. If Sharon were risk neutral, which investment would she select? Explain why. b. If she were risk averse, which investment would she select? Why? c. If she were risk seeking, which investments would she select? Why? d. Suppose a fourth investment, W, is available. It offers an expected return of 18%,and it has a standard deviation of 9%. If Sharon is risk averse, can you say which investment she will choose? Why or why not? Are there any investments that you are certain she will not choose?
You have been asked for your advice in selecting a portfolio of assets and have been supplied with the following data:. You have been told that you can create two portfolios-one consisting of assets A and B and the other consisting of assets A and C-by investing equal proportions (50%) in each of the two component assets. a. What is the average expected return, r, for each asset over the 3-year period? b. What is the standard deviation, s, for each asset's expected return? c. What is the average expected return, rp, for each of the portfolios? d. How would you characterize the correlations of returns of the two assets making up each of the portfolios identified in part c? e. What is the standard deviation of expected returns, Sp, for each portfolio? f. What would happen if you constructed a portfolio consisting of assets A, B, and C, equally weighted? Would this reduce risk or enhance return?

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