EBK 3N3-EBK: FINANCIAL ANALYSIS WITH MI
8th Edition
ISBN: 9780176914943
Author: Mayes
Publisher: VST
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In this question, you will be asked to calculate the variance/risk of a portfolio consisting of two
assets.
Consider a portfolio that only consists of asset E and asset B. E has weight of 60%, and B has weight
of 40%. The variance of E is about 13%, and the variance of B is about 4%. The covariance between
E and B is about 0.2.
What is the variance of this portfolio?
0.1492
O 0.1012
0.19
0.094
Expected return and standard deviation. Use the following information to answer the questions:
a. What is the expected return of each asset?
b. What is the variance of each asset?
c. What is the standard deviation of each asset?
Hint: Make sure to round all intermediate calculations to at least seven (7) decimal places. The input instructions, phra
answers you will type.
Data table
(Click on the following icon in order to copy its contents into a spreadsheet.)
Return on
Asset A in
State of
Economy
Boom
Normal
Recession
Probability
of State
0.35
0.51
0.14
Print
State
0.05
0.05
0.05
Done
Return on
Asset B in
State
0.23
0.08
-0.05
Return on
Asset C in
State
0.33
0.17
-0.22
Expected return and standard deviation. Use the following information to answer the questions:
a. What is the expected return of each asset?
b. What is the variance and the standard deviation of each asset?
c. What is the expected return of a portfolio with 12% in asset J, 52% in asset K, and 36% in asset L?
d. What is the portfolio's variance and standard deviation using the same asset weights from part (c)?
Hint: Make sure to round all intermediate
answers you will type.
a. What is the expected return of asset J?
(Round to four decimal places.)
Data table
(Click on the following icon in order to copy its contents into a spreadsheet.)
Return on
Asset J in
State of
Economy
Boom
Growth
Stagnant
Recession
Probability
of State
0.24
0.36
0.21
0.19
State
0.050
0.050
0.050
0.050
Return on
Asset K in
State
0.230
0.120
0.020
-0.060
Return on
Asset L in
State
0.250
0.190
0.065
- 0.190
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
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- In a regression of the single-index model, the R-square is 66%, residual variance is 0.02, beta estimate is 1.3. What is the variance of the market excess return? Answer: (in decimal format, keep 4 decimal places).arrow_forwardMaroon has an expected return of 20%, and a variance of 0.015. Gray has an expected return of 19%, and a variance of 0.005. The covariance between Maroon and Gray is 0.06. Using these data, calculate the variance of a portfolio consisting of 30% Maroon and 70% Gray. 0.008000 .004710 .033000 .029000 .17029arrow_forwardPlease answerarrow_forward
- Solve it correctly. I'll rate.arrow_forwardConsider the information below, compute the expected return, variance, and standard deviation. Show the solution. Probability Return of Assets 25% .30 25% .050 25% .100 25% .280arrow_forwardThere are three assets with the rates of return r1 = 214 +2 18+1, r2 = -314+61B –2, r3 = 514 – 1B+4, respectively, where A and B are two independent random events. Find the portfolio of the three assets with the minimum variance and determine its expected return rate.arrow_forward
- In a regression of the single-index model, the R-square is 68%, residual variance is 0.08, beta estimate is 0.7. What is the variance of the market excess return?arrow_forwardSuppose the risk free rate is 5% and the market portfolio has an expected return of 10%. Portfolio Z has a correlation coefficient with the market of 0.1 and a variance of 0.16. The market portfolio has a variance of 0.09. According to the CAPM, what is the beta of portfolio Z?arrow_forwardSuppose that there are four risky assets whose expected returns E(r) and variance- covariance matrix (S) are shown in the spreadsheet below. We also consider the portfolio weights of two portfolios x and y of risky assets (see Cells B8:E9): 1 8 Portfolio x 9 Portfolio y A FOUR-ASSET PORTFOLIO PROBLEM Variance-covariance, S 20 Portfolio variance, 21 Portfollo standard deviation o 0.10 0.01 0.03 0.05 11 Portfolio x and y statistics: Mean, variance, covariance, correlation 12 Mean, Ejr, 13 Variance, 14 Covariance() 15 Correlation P 16 17 Calculating returns of combinations of Portfolio x and Portfolio y 18 Proportion of x 19 Mean portfolio return, r 0.01 0.30 0.06 -0.04 0.20 0.20 10.50% 0.1216 0.0714 0.4540 ? ? ? 0.3 0.03 0.06 0.40 0.02 0.30 0.10 ? 0.05 0.02 0.50 0.40 0.10 0.10 0.60 Mean, Er Variance, 0.2014 Question il Question ili Mean returns E(r) ? 7% 9% 11% 20% Question i i. Write the Excel formula used to estimate the mean and variance of portfolio y in cells E12 and E13,…arrow_forward
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