You have $50,000 to invest in three stocks. Let Ri be the random variable representing the annual return on $1 invested in stock i. For example, if Ri = 0.12, then $1 invested in stock i at the beginning of a year is worth $1.12 at the end of the year. The means are E(R1) E(R2) = R3 = = 0.14, 0.11, and E(R3) = 0.10. The variances are Var R1 = 0.20, Var R2 = 0.08, and Var 0.18. The correlations are r12 = 0.8, r13 = 0.7, and r23 0.9. Determine the = minimum - variance portfolio that attains an expected annual return of at least 0.12. (Round your answers to three decimal places.)

You have $50,000 to invest in three stocks. Let Ri be the random variable representing the annual return on $1 invested in stock i. For example, if Ri = 0.12, then $1 invested in stock i at the beginning of a year is worth $1.12 at the end of the year. The means are E(R1) E(R2) = R3 = = 0.14, 0.11, and E(R3) = 0.10. The variances are Var R1 = 0.20, Var R2 = 0.08, and Var 0.18. The correlations are r12 = 0.8, r13 = 0.7, and r23 0.9. Determine the = minimum - variance portfolio that attains an expected annual return of at least 0.12. (Round your answers to three 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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Consider the following information: State Probability Stock A Stock B Stock C Boom 0.32 0.09 -0.01 0.01 Bust 0.68 -0.05 0.28 0.03 What is the expected return of a portfolio that has invested $9,981 in Stock A, $6,817 in Stock B, and $2,123 in Stock C? (Hint: calculate weights of each stock first). Enter the answer with 4 decimals (e.g. 0.1234).
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You own a portfolio that has $7,806 invested in Stock A and $9,747 invested in Stock B. If the expected returns on these stocks are -0.13 and 0.23, respectively, what is the expected return on the portfolio? Enter the answer with 4 decimals (e.g. 0.1234).
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