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.

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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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Citibank is a US Bank which lost US$500 million due to human error in August 2020. Read the case noted in the link below, and answer the following questions: https://finopsinfo.com/investors/citis-900m-blunder-casts-light-on-poor-loan-ops/ Develop a risk management programme appropriate for this case (use attached template) Explain how compliance to this risk management programme can prevent the operation risk issue experienced by Citibank. Discuss the importance of an internal risk assessment and auditing process in relation to this case Step 1 Risks Brief description & how it relates to the case Step 2 List of possible risks Likelihood/Probability of occurrenceH/M/L or Nil Impact (if occurred)H/M/L or Nil What is being done about it now What more can be done about it Dept. where risk exposure exists Step 3 Risk identified Impact (if occurred)H/M/L Probability of occurrenceH/M/L Dept. where risk…

Citibank is a US Bank which lost US$500 million due to human error in August 2020. Read the case noted in the link below, and answer the following questions: https://finopsinfo.com/investors/citis-900m-blunder-casts-light-on-poor-loan-ops/ Develop a risk management programme appropriate for this case (use attached template) Explain how compliance to this risk management programme can prevent the operation risk issue experienced by Citibank. Discuss the importance of an internal risk assessment and auditing process in relation to this case Step 1 Risks Brief description & how it relates to the case Step 2 List of possible risks Likelihood/Probability of occurrenceH/M/L or Nil Impact (if occurred)H/M/L or Nil What is being done about it now What more can be done about it Dept. where risk exposure exists Step 3 Risk identified Impact (if occurred)H/M/L…

Citibank is a US Bank which lost US$500 million due to human error in August 2020. Read the case noted in the link below, and answer the following questions: https://finopsinfo.com/investors/citis-900m-blunder-casts-light-on-poor-loan-ops/ Develop a risk management programme appropriate for this case (use attached template) Explain how compliance to this risk management programme can prevent the operation risk issue experienced by Citibank. Discuss the importance of an internal risk assessment and auditing process in relation to this case

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.

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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

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Answer 15

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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