ct a two-stock portfolio using stock A and stock B. You invest $700 in stock A and $300 in stock B. The return standard deviation of stock A is 15%, that of stock B is 20%, and the return correlation coefficient between stock A and stock B is 0.6. The return standard deviation of your portfoli
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- An analyst has modeled the stock of a company using the Fama-French three-factor model. The market return is 10%, the return on the SMB portfolio (rSMB) is 3.2%, and the return on the HML portfolio (rHML) is 4.8%. If ai = 0, bi = 1.2, ci = 20.4, and di = 1.3, what is the stock’s predicted return?c) Stock 1 has a standard deviation of return of 1%. Stock 2 has a standard deviation of return of 8%. The correlation coefficient between the two stocks is 0.5. If you invest 60% of your funds in stock 1 and 40% in stock 2, what is the standard deviation of your portfolio? Please provide the details of your calculations and discuss your results.Consider an investment portfolio that consists of three different stocks, with the amount invested in each asset shownbelow. Assume the risk-free rate is 2.5% and the market risk premium is 6%. Use this information to answer thefollowing questions.Stock Weights BetasChesapeake Energy 25% 0.8Sodastream 50% 1.3Pentair 25% 1.0a) Compute the expected return for each stock using the CAPM and assuming that the stocks are all fairly priced.b) Compute the portfolio beta and the expected return on the portfolio.c) Now assume that the portfolio only includes 50% invested in Pentair and 50% invested in Sodastream (i.e., a twoassetportfolio). The yearly-return standard deviation of Pentair is 48% and the yearly-return standard deviation ofSodastream is 60%. The correlation coefficent between Pentair’s returns and Sodastream’s returns is 0.3 What is theexpected yearly-return standard deviation for this portfolio?
- c) Stock 1 has a standard deviation of return of 1%. Stock 2 has a standard deviation of return of 8%. The correlation coefficient between the two stocks is 0.5. If you invest 60% of your funds in stock 1 and 40% in stock 2, what is the standard deviation of your portfolio? Please provide the details of your calculations and discuss your results. You decide now to combine your portfolio (discussed in question c) with another portfolio with the same standard deviation and invest equally in both portfolios. The correlation between the two portfolios is zero. d) What is the standard deviation of this new portfolio? Please provide the details of your calculations and discuss your results.Suppose you have a portfolio consisting of two assets, A and B. Stock A has an expected return of 14% and a standard deviation of 31%. Stock B has an expected return of 10% and a standard deviation of 15%. Stocks A and B have a correlation of 0.98. Assuming you invest $7,000 in stock A and $3,000 in stock B, what is the standard deviation of your portfolio? 35.1% 19.4% 26.1% 14.1%c) Stock 1 has a standard deviation of return of 1%. Stock 2 has a standard deviation of return of 8%. The correlation coefficient between the two stocks is 0.5. If you invest 60% of your funds in stock 1 and 40% in stock 2, what is the standard deviation of your portfolio? Please provide the details of your calculations and discuss your results. You decide now to combine your portfolio (discussed in question c) with another portfolio with the same standard deviation and invest equally in both portfolios. The correlation between the two portfolios is zero. d) What is the standard deviation of this new portfolio? Please provide the details of your calculations and discuss your results. e) Did we achieve diversification by combining uncorrelated portfolios with identical levels of risk? Explain.
- Assume that you formed a portfolio of three stock A,B,C. The return for stock A is 10%, the return for stock B is 6% and the return for stock C is 8%. If the weight invested is stock A is 0.3 and the weight invested in stock B is 0.4, Find the portfolio return.Assume that you formed a portfolio of three stocks A, B, C. The return for stock A is 10%, the return for stock B is 6% and the return for stock C is 8%. If the weight invested is stock A is 0.3 and the weight invested in stock B is 0.4, find the portfolio return.Suppose the total risk of Portfolios A, B and C are 49% ², 64%² and 100% ² respectively. The market price of risk is 8%. The Market Portfolio (M) has an expected return and a total risk of 11% and 100% respectively. (a) You want to form another Portfolio H by investing $7,000 in Portfolio A and $3,000 in Portfolio B. Compute the standard deviation of Portfolio H if the correlation coefficient between Portfolio A and Portfolio B is: i) perfectly positively correlated ii) uncorrelated iii) perfectly negatively correlated (b) If the expected return of Portfolio C is 9.4% and it is lying on the Securities Market Line, what is the beta of Portfolio C? State the answer in %². (c) Is Portfolio C a Market Portfolio as it has same level of total risk (i.e. 100% 2) as the Market Portfolio? Why or Why not?
- You create a portfolio that invests 60% in stock A with E(rA) = 15%, σA = 10% and 40% in stock B with E(rB) = 10%, σB = 4%. 1. Estimate the expected return of the portfolio. 2. Estimate the standard deviation of the portfolio if the two stocks are uncorrelated. 3. Estimate the standard deviation of the portfolio if the two stocks have correlation 0.5. 4. Estimate the standard deviation of the portfolio if the two stocks are perfectly positively correlated.You own a portfolio that is 22 percent invested in Stock X, 37 percent in Stock Y, and 41 percent in Stock Z. The expected returns on these three stocks are 12 percent, 15 percent, and 17 percent, respectively. What is the expected return on the portfolio? Expected return _________%You hold a portfolio consisting of two stocks. Stock Abc has an expected return of 20% and a standard deviation of returns of 25%. Stock Xyz has an expected return of 12% and a standard deviation of returns of 10%. The correlation coefficient between the stock returns of Abc and Xyz is 0.3. Stock Abc comprises 60% of the portfolio, while stock Xyz comprises 40% of the portfolio. a. What is the expected return of your portfolio? b. What is the standard deviation of this portfolio's return? c. How would your answer in part b) change if you added five more stocks (with similar standard deviations of returns) to your portfolio? You do not need to provide an actual number – just answer whether the standard deviation would go up, stay the same, or go down. Please explain your answer for full credit. O Focus MacBook PrO
