Adequate information: Expected return on Stock A [E(R) A ] = 10% or 0.10 Expected return on Stock B [E(R) B ] = 16% or 0.16 Standard deviation on Stock A (σ A ) = 41% or 0.41 Standard deviation on Stock B (σ B ) = 77% or 0.77 Covariance between the returns of Stock A and Stock B [Cov (A, B)] = 0.001 To compute: The weight of Stock A and Stock B Introduction: Portfolio weights refer to the percentage of each asset in the portfolio.

Question

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Answer 1

Question

Chapter 11, Problem 38QAP

a.

Summary Introduction

Adequate information:

Expected return on Stock A [E(R)_A] = 10% or 0.10

Expected return on Stock B [E(R)_B] = 16% or 0.16

Standard deviation on Stock A (σ_A) = 41% or 0.41

Standard deviation on Stock B (σ_B) = 77% or 0.77

Covariance between the returns of Stock A and Stock B [Cov (A, B)] = 0.001

To compute: The weight of Stock A and Stock B

Introduction: Portfolio weights refer to the percentage of each asset in the portfolio.

b.

Summary Introduction

Adequate information:

Expected return on Stock A [E(R)_A] = 10% or 0.10

Expected return on Stock B [E(R)_B] = 16% or 0.16

Standard deviation on Stock A (σ_A) = 41% or 0.41

Standard deviation on Stock B (σ_B) = 77% or 0.77

Covariance between the returns of Stock A and Stock B [Cov (A, B)] = 0.001

To compute: The expected return on the minimum variance portfolio.

Introduction: The expected return of a portfolio depicts the weighted average return of the stocks in that portfolio.

c.

Summary Introduction

Adequate information:

Expected return on Stock A [E(R)_A] = 10% or 0.10

Expected return on Stock B [E(R)_B] = 16% or 0.16

Standard deviation on Stock A (σ_A) = 41% or 0.41

Standard deviation on Stock B (σ_B) = 77% or 0.77

Covariance between the returns of Stock A and Stock B [Cov (A, B)] = -0.05

To compute: The weight of Stock A and Stock B.

Introduction: Portfolio weights refer to the weightage or proportion of each asset in the investment portfolio.

d.

Summary Introduction

Adequate information:

Expected return on Stock A [E(R)_A] = 10% or 0.10

Expected return on Stock B [E(R)_B] = 16% or 0.16

Standard deviation on Stock A (σ_A) = 41% or 0.41

Standard deviation on Stock B (σ_B) = 77% or 0.77

Covariance between the returns of Stock A and Stock B [Cov (A, B)] = -0.05

To compute: The variance of the portfolio.

Introduction: The standard deviation of a portfolio determines the unsystematic risk of the portfolio.

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Answer 2

Question

Chapter 11, Problem 38QAP

a.

Summary Introduction

Adequate information:

Expected return on Stock A [E(R)_A] = 10% or 0.10

Expected return on Stock B [E(R)_B] = 16% or 0.16

Standard deviation on Stock A (σ_A) = 41% or 0.41

Standard deviation on Stock B (σ_B) = 77% or 0.77

Covariance between the returns of Stock A and Stock B [Cov (A, B)] = 0.001

To compute: The weight of Stock A and Stock B

Introduction: Portfolio weights refer to the percentage of each asset in the portfolio.

b.

Summary Introduction

Adequate information:

Expected return on Stock A [E(R)_A] = 10% or 0.10

Expected return on Stock B [E(R)_B] = 16% or 0.16

Standard deviation on Stock A (σ_A) = 41% or 0.41

Standard deviation on Stock B (σ_B) = 77% or 0.77

Covariance between the returns of Stock A and Stock B [Cov (A, B)] = 0.001

To compute: The expected return on the minimum variance portfolio.

Introduction: The expected return of a portfolio depicts the weighted average return of the stocks in that portfolio.

c.

Summary Introduction

Adequate information:

Expected return on Stock A [E(R)_A] = 10% or 0.10

Expected return on Stock B [E(R)_B] = 16% or 0.16

Standard deviation on Stock A (σ_A) = 41% or 0.41

Standard deviation on Stock B (σ_B) = 77% or 0.77

Covariance between the returns of Stock A and Stock B [Cov (A, B)] = -0.05

To compute: The weight of Stock A and Stock B.

Introduction: Portfolio weights refer to the weightage or proportion of each asset in the investment portfolio.

d.

Summary Introduction

Adequate information:

Expected return on Stock A [E(R)_A] = 10% or 0.10

Expected return on Stock B [E(R)_B] = 16% or 0.16

Standard deviation on Stock A (σ_A) = 41% or 0.41

Standard deviation on Stock B (σ_B) = 77% or 0.77

Covariance between the returns of Stock A and Stock B [Cov (A, B)] = -0.05

To compute: The variance of the portfolio.

Introduction: The standard deviation of a portfolio determines the unsystematic risk of the portfolio.

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Answer 3

Question

Chapter 11, Problem 38QAP

a.

Summary Introduction

Adequate information:

Expected return on Stock A [E(R)_A] = 10% or 0.10

Expected return on Stock B [E(R)_B] = 16% or 0.16

Standard deviation on Stock A (σ_A) = 41% or 0.41

Standard deviation on Stock B (σ_B) = 77% or 0.77

Covariance between the returns of Stock A and Stock B [Cov (A, B)] = 0.001

To compute: The weight of Stock A and Stock B

Introduction: Portfolio weights refer to the percentage of each asset in the portfolio.

b.

Summary Introduction

Adequate information:

Expected return on Stock A [E(R)_A] = 10% or 0.10

Expected return on Stock B [E(R)_B] = 16% or 0.16

Standard deviation on Stock A (σ_A) = 41% or 0.41

Standard deviation on Stock B (σ_B) = 77% or 0.77

Covariance between the returns of Stock A and Stock B [Cov (A, B)] = 0.001

To compute: The expected return on the minimum variance portfolio.

Introduction: The expected return of a portfolio depicts the weighted average return of the stocks in that portfolio.

c.

Summary Introduction

Adequate information:

Expected return on Stock A [E(R)_A] = 10% or 0.10

Expected return on Stock B [E(R)_B] = 16% or 0.16

Standard deviation on Stock A (σ_A) = 41% or 0.41

Standard deviation on Stock B (σ_B) = 77% or 0.77

Covariance between the returns of Stock A and Stock B [Cov (A, B)] = -0.05

To compute: The weight of Stock A and Stock B.

Introduction: Portfolio weights refer to the weightage or proportion of each asset in the investment portfolio.

d.

Summary Introduction

Adequate information:

Expected return on Stock A [E(R)_A] = 10% or 0.10

Expected return on Stock B [E(R)_B] = 16% or 0.16

Standard deviation on Stock A (σ_A) = 41% or 0.41

Standard deviation on Stock B (σ_B) = 77% or 0.77

Covariance between the returns of Stock A and Stock B [Cov (A, B)] = -0.05

To compute: The variance of the portfolio.

Introduction: The standard deviation of a portfolio determines the unsystematic risk of the portfolio.

Expert Solution & Answer

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Answer 4

Question

Chapter 11, Problem 38QAP

a.

Summary Introduction

Adequate information:

Expected return on Stock A [E(R)_A] = 10% or 0.10

Expected return on Stock B [E(R)_B] = 16% or 0.16

Standard deviation on Stock A (σ_A) = 41% or 0.41

Standard deviation on Stock B (σ_B) = 77% or 0.77

Covariance between the returns of Stock A and Stock B [Cov (A, B)] = 0.001

To compute: The weight of Stock A and Stock B

Introduction: Portfolio weights refer to the percentage of each asset in the portfolio.

b.

Summary Introduction

Adequate information:

Expected return on Stock A [E(R)_A] = 10% or 0.10

Expected return on Stock B [E(R)_B] = 16% or 0.16

Standard deviation on Stock A (σ_A) = 41% or 0.41

Standard deviation on Stock B (σ_B) = 77% or 0.77

Covariance between the returns of Stock A and Stock B [Cov (A, B)] = 0.001

To compute: The expected return on the minimum variance portfolio.

Introduction: The expected return of a portfolio depicts the weighted average return of the stocks in that portfolio.

c.

Summary Introduction

Adequate information:

Expected return on Stock A [E(R)_A] = 10% or 0.10

Expected return on Stock B [E(R)_B] = 16% or 0.16

Standard deviation on Stock A (σ_A) = 41% or 0.41

Standard deviation on Stock B (σ_B) = 77% or 0.77

Covariance between the returns of Stock A and Stock B [Cov (A, B)] = -0.05

To compute: The weight of Stock A and Stock B.

Introduction: Portfolio weights refer to the weightage or proportion of each asset in the investment portfolio.

d.

Summary Introduction

Adequate information:

Expected return on Stock A [E(R)_A] = 10% or 0.10

Expected return on Stock B [E(R)_B] = 16% or 0.16

Standard deviation on Stock A (σ_A) = 41% or 0.41

Standard deviation on Stock B (σ_B) = 77% or 0.77

Covariance between the returns of Stock A and Stock B [Cov (A, B)] = -0.05

To compute: The variance of the portfolio.

Introduction: The standard deviation of a portfolio determines the unsystematic risk of the portfolio.

Expert Solution & Answer

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Answer 5

Chapter 11, Problem 38QAP

a.

Summary Introduction

Adequate information:

Expected return on Stock A [E(R)_A] = 10% or 0.10

Expected return on Stock B [E(R)_B] = 16% or 0.16

Standard deviation on Stock A (σ_A) = 41% or 0.41

Standard deviation on Stock B (σ_B) = 77% or 0.77

Covariance between the returns of Stock A and Stock B [Cov (A, B)] = 0.001

To compute: The weight of Stock A and Stock B

Introduction: Portfolio weights refer to the percentage of each asset in the portfolio.

b.

Summary Introduction

Adequate information:

Expected return on Stock A [E(R)_A] = 10% or 0.10

Expected return on Stock B [E(R)_B] = 16% or 0.16

Standard deviation on Stock A (σ_A) = 41% or 0.41

Standard deviation on Stock B (σ_B) = 77% or 0.77

Covariance between the returns of Stock A and Stock B [Cov (A, B)] = 0.001

To compute: The expected return on the minimum variance portfolio.

Introduction: The expected return of a portfolio depicts the weighted average return of the stocks in that portfolio.

c.

Summary Introduction

Adequate information:

Expected return on Stock A [E(R)_A] = 10% or 0.10

Expected return on Stock B [E(R)_B] = 16% or 0.16

Standard deviation on Stock A (σ_A) = 41% or 0.41

Standard deviation on Stock B (σ_B) = 77% or 0.77

Covariance between the returns of Stock A and Stock B [Cov (A, B)] = -0.05

To compute: The weight of Stock A and Stock B.

Introduction: Portfolio weights refer to the weightage or proportion of each asset in the investment portfolio.

d.

Summary Introduction

Adequate information:

Expected return on Stock A [E(R)_A] = 10% or 0.10

Expected return on Stock B [E(R)_B] = 16% or 0.16

Standard deviation on Stock A (σ_A) = 41% or 0.41

Standard deviation on Stock B (σ_B) = 77% or 0.77

Covariance between the returns of Stock A and Stock B [Cov (A, B)] = -0.05

To compute: The variance of the portfolio.

Introduction: The standard deviation of a portfolio determines the unsystematic risk of the portfolio.

Answer 6

Chapter 11, Problem 38QAP

a.

Summary Introduction

Adequate information:

Expected return on Stock A [E(R)_A] = 10% or 0.10

Expected return on Stock B [E(R)_B] = 16% or 0.16

Standard deviation on Stock A (σ_A) = 41% or 0.41

Standard deviation on Stock B (σ_B) = 77% or 0.77

Covariance between the returns of Stock A and Stock B [Cov (A, B)] = 0.001

To compute: The weight of Stock A and Stock B

Introduction: Portfolio weights refer to the percentage of each asset in the portfolio.

Answer 7

Chapter 11, Problem 38QAP

a.

Summary Introduction

Adequate information:

Expected return on Stock A [E(R)_A] = 10% or 0.10

Expected return on Stock B [E(R)_B] = 16% or 0.16

Standard deviation on Stock A (σ_A) = 41% or 0.41

Standard deviation on Stock B (σ_B) = 77% or 0.77

Covariance between the returns of Stock A and Stock B [Cov (A, B)] = 0.001

To compute: The weight of Stock A and Stock B

Introduction: Portfolio weights refer to the percentage of each asset in the portfolio.

Answer 8

b.

Summary Introduction

Adequate information:

Expected return on Stock A [E(R)_A] = 10% or 0.10

Expected return on Stock B [E(R)_B] = 16% or 0.16

Standard deviation on Stock A (σ_A) = 41% or 0.41

Standard deviation on Stock B (σ_B) = 77% or 0.77

Covariance between the returns of Stock A and Stock B [Cov (A, B)] = 0.001

To compute: The expected return on the minimum variance portfolio.

Introduction: The expected return of a portfolio depicts the weighted average return of the stocks in that portfolio.

Answer 9

b.

Summary Introduction

Adequate information:

Expected return on Stock A [E(R)_A] = 10% or 0.10

Expected return on Stock B [E(R)_B] = 16% or 0.16

Standard deviation on Stock A (σ_A) = 41% or 0.41

Standard deviation on Stock B (σ_B) = 77% or 0.77

Covariance between the returns of Stock A and Stock B [Cov (A, B)] = 0.001

To compute: The expected return on the minimum variance portfolio.

Introduction: The expected return of a portfolio depicts the weighted average return of the stocks in that portfolio.

Answer 10

c.

Summary Introduction

Adequate information:

Expected return on Stock A [E(R)_A] = 10% or 0.10

Expected return on Stock B [E(R)_B] = 16% or 0.16

Standard deviation on Stock A (σ_A) = 41% or 0.41

Standard deviation on Stock B (σ_B) = 77% or 0.77

Covariance between the returns of Stock A and Stock B [Cov (A, B)] = -0.05

To compute: The weight of Stock A and Stock B.

Introduction: Portfolio weights refer to the weightage or proportion of each asset in the investment portfolio.

Answer 11

c.

Summary Introduction

Adequate information:

Expected return on Stock A [E(R)_A] = 10% or 0.10

Expected return on Stock B [E(R)_B] = 16% or 0.16

Standard deviation on Stock A (σ_A) = 41% or 0.41

Standard deviation on Stock B (σ_B) = 77% or 0.77

Covariance between the returns of Stock A and Stock B [Cov (A, B)] = -0.05

To compute: The weight of Stock A and Stock B.

Introduction: Portfolio weights refer to the weightage or proportion of each asset in the investment portfolio.

Answer 12

d.

Summary Introduction

Adequate information:

Expected return on Stock A [E(R)_A] = 10% or 0.10

Expected return on Stock B [E(R)_B] = 16% or 0.16

Standard deviation on Stock A (σ_A) = 41% or 0.41

Standard deviation on Stock B (σ_B) = 77% or 0.77

Covariance between the returns of Stock A and Stock B [Cov (A, B)] = -0.05

To compute: The variance of the portfolio.

Introduction: The standard deviation of a portfolio determines the unsystematic risk of the portfolio.

Answer 13

d.

Summary Introduction

Adequate information:

Expected return on Stock A [E(R)_A] = 10% or 0.10

Expected return on Stock B [E(R)_B] = 16% or 0.16

Standard deviation on Stock A (σ_A) = 41% or 0.41

Standard deviation on Stock B (σ_B) = 77% or 0.77

Covariance between the returns of Stock A and Stock B [Cov (A, B)] = -0.05

To compute: The variance of the portfolio.

Introduction: The standard deviation of a portfolio determines the unsystematic risk of the portfolio.

Answer 14

Expert Solution & Answer

Answer 15

Expert Solution & Answer

Answer 16

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Answer 17

Ch. 11 - Diversifiable and Nondiversifiable Risks In broad...Ch. 11 - Systematic versus Unsystematic Risk Classify the...Ch. 11 - Expected Portfolio Returns If a portfolio has a...Ch. 11 - Diversification True or false: The most important...Ch. 11 - Portfolio Risk If a portfolio has a positive...Ch. 11 - Beta and CAPM Is it possible that a risky asset...Ch. 11 - Covariance Briefly explain why the covariance of a...Ch. 11 - Prob. 8CQ Ch. 11 - Prob. 9CQ Ch. 11 - Prob. 10CQ

Solution Summary: The author explains how to calculate the weight of Stock A and Stock B using the portfolio variance formula.

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Chapter 11 Solutions