The volatility (standard deviation) of the portfolio when the number of stock becomes arbitrarily large. Introduction: Standard deviation refers to the deviation of the actual returns from the expected returns.

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Answer 1

Question

Chapter 11, Problem 18P

a)

Summary Introduction

To determine: The volatility (standard deviation) of the portfolio when the number of stock becomes arbitrarily large.

Introduction:

Standard deviation refers to the deviation of the actual returns from the expected returns.

b)

Summary Introduction

To determine: The average correlation of each stock with the large portfolio.

Introduction:

Portfolio refers to a set of financial investments owned by the investor. The portfolio of investments includes debentures, stocks, bonds, and mutual funds.

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Suppose 0.3 is the correlation of returns between any two stocks in an equal-weighted portfolio containing N stocks. Suppose the volatility of any stock is 25%. Calculate the volatility of a portfolio with · N = 24 stocks · N = 100 stocks · N = infinite stocks

Consider a portfolio consisting of the following three stocks: E The volatility of the market portfolio is 10% and it has an expected return of 8%. The risk-free rate is 3%. a. Compute the beta and expected return of each stock. b. Using your answer from part (a), calculate the expected return of the portfolio. c. What is the beta of the portfolio? d. Using your answer from part (c), calculate the expected return of the portfolio and verify that it matches your answer to part (b). a. Compute the beta and expected return of each stock. (Round to two decimal places.) TITLT Data table Portfolio Weight (A) Volatility (B) Correlation (C) Expected Return (E) % Beta (D) НЕС Согр 0.28 13% 0.33 Green Widget (Click on the following icon a in order to copy its contents into a spreadsheet.) 0.39 27% 0.61 % Portfolio Weight Alive And Well 0.33 14% 0.43 Volatility 13% Correlation with the Market Portfolio НЕС Согр Green Widget 0.28 0.33 b. Using your answer from part (a), calculate the expected…

Suppose that the capital asset pricing model (CAPM) applies. The risk premium of a stock is 3 percent and the risk premium of the market portfolio is 2. The standard deviation of the market portfo- lio is 6. Compute the covariance between the stock and the market portfolio.

Answer 2

Question

Chapter 11, Problem 18P

a)

Summary Introduction

To determine: The volatility (standard deviation) of the portfolio when the number of stock becomes arbitrarily large.

Introduction:

Standard deviation refers to the deviation of the actual returns from the expected returns.

b)

Summary Introduction

To determine: The average correlation of each stock with the large portfolio.

Introduction:

Portfolio refers to a set of financial investments owned by the investor. The portfolio of investments includes debentures, stocks, bonds, and mutual funds.

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Answer 3

Question

Chapter 11, Problem 18P

a)

Summary Introduction

To determine: The volatility (standard deviation) of the portfolio when the number of stock becomes arbitrarily large.

Introduction:

Standard deviation refers to the deviation of the actual returns from the expected returns.

b)

Summary Introduction

To determine: The average correlation of each stock with the large portfolio.

Introduction:

Portfolio refers to a set of financial investments owned by the investor. The portfolio of investments includes debentures, stocks, bonds, and mutual funds.

Expert Solution & Answer

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Answer 4

Question

Chapter 11, Problem 18P

a)

Summary Introduction

To determine: The volatility (standard deviation) of the portfolio when the number of stock becomes arbitrarily large.

Introduction:

Standard deviation refers to the deviation of the actual returns from the expected returns.

b)

Summary Introduction

To determine: The average correlation of each stock with the large portfolio.

Introduction:

Portfolio refers to a set of financial investments owned by the investor. The portfolio of investments includes debentures, stocks, bonds, and mutual funds.

Expert Solution & Answer

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Answer 5

Chapter 11, Problem 18P

a)

Summary Introduction

To determine: The volatility (standard deviation) of the portfolio when the number of stock becomes arbitrarily large.

Introduction:

Standard deviation refers to the deviation of the actual returns from the expected returns.

b)

Summary Introduction

To determine: The average correlation of each stock with the large portfolio.

Introduction:

Portfolio refers to a set of financial investments owned by the investor. The portfolio of investments includes debentures, stocks, bonds, and mutual funds.

Answer 6

Chapter 11, Problem 18P

a)

Summary Introduction

To determine: The volatility (standard deviation) of the portfolio when the number of stock becomes arbitrarily large.

Introduction:

Standard deviation refers to the deviation of the actual returns from the expected returns.

Answer 7

Chapter 11, Problem 18P

a)

Summary Introduction

To determine: The volatility (standard deviation) of the portfolio when the number of stock becomes arbitrarily large.

Introduction:

Standard deviation refers to the deviation of the actual returns from the expected returns.

Answer 8

b)

Summary Introduction

To determine: The average correlation of each stock with the large portfolio.

Introduction:

Portfolio refers to a set of financial investments owned by the investor. The portfolio of investments includes debentures, stocks, bonds, and mutual funds.

Answer 9

b)

Summary Introduction

To determine: The average correlation of each stock with the large portfolio.

Introduction:

Portfolio refers to a set of financial investments owned by the investor. The portfolio of investments includes debentures, stocks, bonds, and mutual funds.

Answer 10

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Answer 11

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Answer 12

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Answer 13

Ch. 11.1 - What is a portfolio weight?Ch. 11.1 - How do we calculate the return on a portfolio?Ch. 11.2 - What does the correlation measure?Ch. 11.2 - How does the correlation between the stocks in a...Ch. 11.3 - Prob. 1CC Ch. 11.3 - Prob. 2CC Ch. 11.4 - Prob. 1CC Ch. 11.4 - Prob. 2CC Ch. 11.4 - Prob. 3CC Ch. 11.5 - What do we know about the Sharpe ratio of the...

The volatility (standard deviation) of the portfolio when the number of stock becomes arbitrarily large. Introduction: Standard deviation refers to the deviation of the actual returns from the expected returns.

Solution Summary: The author explains the volatility of the portfolio when the number of stocks becomes arbitrarily large. The average correlation of each stock is 44.72%.

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To determine: The volatility (standard deviation) of the portfolio when the number of stock becomes arbitrarily large.

Introduction:

Standard deviation refers to the deviation of the actual returns from the expected returns.

To determine: The average correlation of each stock with the large portfolio.

Introduction:

Portfolio refers to a set of financial investments owned by the investor. The portfolio of investments includes debentures, stocks, bonds, and mutual funds.

Want to see the full answer?

Chapter 11 Solutions

The volatility (standard deviation) of the portfolio when the number of stock becomes arbitrarily large. Introduction: Standard deviation refers to the deviation of the actual returns from the expected returns.

Solution Summary: The author explains the volatility of the portfolio when the number of stocks becomes arbitrarily large. The average correlation of each stock is 44.72%.

Concept explainers

Videos

To determine: The volatility (standard deviation) of the portfolio when the number of stock becomes arbitrarily large. Introduction: Standard deviation refers to the deviation of the actual returns from the expected returns.

To determine: The average correlation of each stock with the large portfolio. Introduction: Portfolio refers to a set of financial investments owned by the investor. The portfolio of investments includes debentures, stocks, bonds, and mutual funds.

Want to see the full answer?

Chapter 11 Solutions

To determine: The volatility (standard deviation) of the portfolio when the number of stock becomes arbitrarily large.

Introduction:

Standard deviation refers to the deviation of the actual returns from the expected returns.

To determine: The average correlation of each stock with the large portfolio.

Introduction:

Portfolio refers to a set of financial investments owned by the investor. The portfolio of investments includes debentures, stocks, bonds, and mutual funds.