Two investments, X and Y, have the characteristics shown below. E(X) = $70, E(Y)%3D$120, o =7,000, o = 14,000, and oxy =7,500 If the weight of portfolio assets assigned to investment X is 0.3, compute the a. portfolio expected return and b. portfolio risk. a. If the weight of portfolio assets assigned to investment X is 0.3, the portfolio expected return is $ (Type an integer or a decimal.) b. If the weight of portfolio assets assigned to investment X is 0.3, the portfolio risk is approximately $ (Round to two decimal places as needed.)

Two investments, X and Y, have the characteristics shown below. E(X) = $70, E(Y)%3D$120, o =7,000, o = 14,000, and oxy =7,500 If the weight of portfolio assets assigned to investment X is 0.3, compute the a. portfolio expected return and b. portfolio risk. a. If the weight of portfolio assets assigned to investment X is 0.3, the portfolio expected return is $ (Type an integer or a decimal.) b. If the weight of portfolio assets assigned to investment X is 0.3, the portfolio risk is approximately $ (Round to two decimal places as needed.)

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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An investor has a portfolio of two assets A and B. The details are shown in the below table. Portfolio Details Asset Expectedreturn Standarddeviation Covariance (A, B) Expected Portfolio Return A 0.06 0.5 0.12 0.1 B 0.08 0.8 Which one of the following statements is NOT correct? a. The portfolio weight in asset A is -100%. b. The correlation of asset A and B’s returns is 0.3. c. The investor can benefit from a fall in the price of asset A. d. The variance of the portfolio is 2.33. e. The order of short selling is borrowing, buying, selling, and returning.
Consider the expected return and standard deviation of the following two assets: Asset 1: E[r1]=0.1 and σ1=0.2 Asset 2: E[r2]=0.3 and σ2=0.4 (a) Draw (e.g. with Excel) the set of achievable portfolios in mean-standard deviation space for the cases: (i) ρ12= -1, (ii) ρ12=0. (b) Suppose ρ12=-1. Which portfolio has the minimal variance? What is the variance and expected return of that portfolio? (c) Derive the formula for the variance of a portfolio with four assets.
What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation (SDi), covariance (COVij), and asset weight (Wi) are as shown below? Asset (A) E(R₁) = 10% SDA = 8% WA = 0.25 COVAB = 0.006 Asset (B) E(R₂) = 15% SDB = 9.5% WB = 0.75
What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation (SDi), covariance (COVij), and asset weight (Wi) are as shown below? Asset (A) E(R₂) = 10% SDA = 8% WA = 0.25 COVAB = 0.006 Select one: A. 13.75% B. 7.72% C. 12.5% D. 8.79% Asset (B) E(RB) = 15% SDB = 9.5% WB = 0.75
A particular firm’s portfolio is composed of two assets, which we will call" A" and "B." Let X denote the annual rate of return from asset A, and let Y denote the annual rate of return from asset B. Suppose that E(X) = 0.15, E(Y) = 0.20, SD (X) = 0.05, SD (Y) = 0.06, and CORR (X, Y) = 0.30. Use a spreadsheet to perform the following analysis. (a) What is the expected return of investing 50% of the portfolio in asset A and 50% of the portfolio in asset B? What is the variance of this return? (b) Replace CORR (X, Y) = 0.30 by CORR (X, Y) = 0.60, 0, -0.30, and -0.60 and answer the questions in part (a). What is the impact of correlation on the expected returns and its variance? Explain why this is so. (c) Suppose that the fraction of the portfolio that is invested in asset B is f, and so the fraction of the portfolio that is invested in asset A is (1 – f). Let f vary from f = 0.0 to f = 1.0 in increments of 5% (that is, f = 0.0, 0.05, 0.10, 0.15, ...), and compute the mean and the…
A two-asset portfolio has the following characteristics. The correlation coefficient between the returns of the two assets is +0.1. Asset Expected Return Expected Standard Deviation Weight A 12% 3% 0.8 B 20% 7% 0.2 Calculate the expected return and the risk (i.e. standard deviation) of this two-asset portfolio. Comment on the risk of this portfolio relative to the two individual assets. Suppose the correlation coefficient between A and B was -1.0. How can an investor obtain a zero risk portfolio consisting of A and B?
You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset: Portfolio X Y Z Market Risk-free Rp 11.0% ор 33.00% 10.0 28.00 8.1 10.4 5.2 18.00 23.00 Ө вр 1.45 1.20 0.75 1.00 Ө Assume that the correlation of returns on Portfolio Y to returns on the market is 0.66. What percentage of Portfolio Y's return is driven by the market? Note: Enter your answer as a decimal not a percentage. Round your answer to 4 decimal places. R-squared
a) Consider two assets with the following characteristics: Expected return of asset 1 = 0.15, Standard deviation of asset 1 = 0.10, portion in asset 1 = 0.5 Expected return of asset 2 = 0.20, Standard deviation of asset 2 = 0.20, Compute the expected return and standard deviation of portfolio if correlation coefficient (r1,2) = 0.40 and (r1,2)= -0.60 b) Why do most investors hold diversified portfolio?
You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset: 8p 1.70 1.30 0.85 1.00 Portfolio X Y Z Market Risk-free Rp 11.5% 10.5 7.2 10.9 4.6 R-squared op 38.00% 33.00 23.00 28.00 0 Assume that the correlation of returns on Portfolio Y to returns on the market is 0.76. What percentage of Portfolio Y's return is driven by the market? Note: Enter your answer as a decimal not a percentage. Round your answer to 4 decimal places.
The following portfolios are being considered for investment. During the period under consideration, RFR = 0.07.Portfolio Return Beta σiA 0.15 1.0 0.05B 0.20 1.5 0.10C 0.10 0.6 0.03D 0.17 1.1 0.06Market 0.13 1.0 0.04 a. Compute the Sharpe measure for each portfolio and the market portfolio. b. Compute the Treynor measure for each portfolio and the market portfolio. c. Rank the portfolios using each measure, explaining the cause for any differences you find in the rankings.
Darren is considering the following investments; Alphabet, PayZero and FNQ Res.: Probability of return (%) Likely Return Alphabet (%) Likely Return PayZero (%) Likely Return FNQ Res. (%) 20 6 4 9 30 9 7 14 40 16 10 19 10 18 14 26 a) Calculate the expected return for each asset. b) Calculate the expected return on a portfolio comprising each asset weighted as follows Asset Weighting (%) Weighting (%) Alphabet 20 PayZero 55 FNQ Res. 25 c) Explain to Darren the benefit of combining the assets into a portfolio instead of undertaking individual investments in Alphabet, PayZero and FNQ Res. d) Calculate the risk attached to each of the investments proposed in Alphabet, PayZero and FNQ Res. Rank each investment in regard to its risk and return. Discuss the likely range of returns that could eventuate for each asset with a 95% level of accuracy.
Consider the following performance data for a portfolio manager: Benchmark Portfolio Index Portfolio Weight Weight Return Return Stocks 0.65 0.7 0.11 0.12 Bonds 0.3 0.25 0.07 0.08 Cash 0.05 0.05 0.03 0.025 a.Calculate the percentage return that can be attributed to the asset allocation decision. b.Calculate the percentage return that can be attributed to the security selection decision.

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