You are creating a portfolio of two stocks. The first one has a standard deviation of 18.6% and the second one has a standard deviation of 17.1 % . The correlation coefficient between the returns of the two is -0.13. You will invest 36% of the portfolio in the first stock and the rest in the second stock. What will be the standard deviation of this portfolio's returns? Answer in percent, rounded to one decimal place (e.g., 4.32% = 4.3).

You are creating a portfolio of two stocks. The first one has a standard deviation of 18.6% and the second one has a standard deviation of 17.1 % . The correlation coefficient between the returns of the two is -0.13. You will invest 36% of the portfolio in the first stock and the rest in the second stock. What will be the standard deviation of this portfolio's returns? Answer in percent, rounded to one decimal place (e.g., 4.32% = 4.3).

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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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?
Using the data in the following table,, consider a portfolio that maintains a 50% weight on stock A and a 50% weight on stock B a. What is the return each year of this portfolio? b. Based on your results from part (a), compute the average return and volatility of the portfolio. c. Show that (i) the average return of the portfolio is equal to the (weighted) average of the average returns of the two stocks, and (ii) the volatility of the portfolio equals the same result as from the calculation in Eq. 11.8. d. Explain why the portfolio has a lower volatility than the average volatility of the two stocks. a. What is the return each year of this portfolio? Enter the return of this portfolio for each year in the table below (Round to two decimal places.) Year Portfolio Data table 2010 % 2011 % 2012 % 2013 % (Click on the following icon in order to copy its contents into a spreadsheet.) 2014 2015 %1 1% Year 2010 2011 2012 2013 2014 2015 Stock A -10% 20% 5% 5% 2% 9% Stock B 21% 7% 30% -3% 8%…
Asset X has a beta of 1.7 and an expected return of 15.1%. Asset Y has a beta of .70 and an expected return of 8.50%. The risk-free rate is 4.2%. If you wish to hold a portfolio consisting of assets X and Y and have a portfolio beta equal to 1.0, what is the expected return of the portfolio? The final answer should also be rounded to 5 decimal places.
You will have a portfolio that is only comprised of two assets. You plan to allocate 47.1% into asset A, which has an expected return of 12.1%. The remainder of your portfolio will be allocated to asset B, which has an expected return of 5.9%. What is your expected return on this two-asset portfolio? State your answer as a percentage with two decimal places (i.e., 13.21, not 0.1321).
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An investiment portfolio consists of two securities, X and Y. The weight of X is 30%. Asset X's expected return is 15% and the standard deviation is 28%. Asset Y's expected return is 23% and the standard deviation is 33%. Assume the correlation coefficient between X and Y is 0.37. A. Calcualte the expected return of the portfolio. B. Calculate the standard deviation of the portfolio return. C. Suppose now the investor decides to add some risk free assets into this portfolio. The new weights of X, Y and risk free assets are 0.21, 0.49 and 0.30. What is the standard deviation of the new portfolio?
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You have a portfolio with a standard deviation of 23% and an expected return of 17%. You are considering adding one of the two stocks in the following table: If after adding the stock you will have 25% of your money in the new stock and 75% of your money in your existing portfolio, which one should you add? Standard deviation of the portfolio with stock A is%. (Round to two decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Stock A Stock B Expected Return 16% 16% Print Standard Deviation 23% 18% C... Done Correlation with Your Portfolio's Returns 0.3 0.8 - X
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.
The following portfolios are being considered for investment. During the period under consideration, RFR = 0.07. Portfolio Return Beta P 0.15 1.00 0.05 Q 0.09 0.50 0.03 R. 0.21 1.30 0.10 0.18 1.20 0.06 Market 0.12 1.00 0.04 a. Compute the Sharpe measure for each portfolio and the market portfolio. Round your answers to three decimal places. Portfolio Sharpe measure P Q R Market b. Compute the Treynor measure for each portfolio and the market portfolio. Round your answers to three decimal places. Portfolio Treynor measure P Q R Market c. Rank the portfolios using each measure, explaining the cause for any differences you find in the rankings. Portfolio Rank (Sharpe measure) Rank (Treynor measure) P |-Select- v |-Select- v Q -Select- v -Select- V R. -Select- V -Select- v -Select- v -Select- v Market -Select- v -Select- v -Select- v is poorly diversified since it has a high ranking based on the -Select- but a much lower ranking with the -Select-
Using the CAPM, estimate the appropriate required rate of return for the three stocks listed here, given that the risk-free rate is 6 percent and the expected return for the market is 14 percent. STOCK ВЕТА A 0.62 B 1.09 1.48 a. Using the CAPM, the required rate of return for stock A is %. (Round to two decimal places.) b. Using the CAPM, the required rate of return for stock B is %. (Round to two decimal places.) c. Using the CAPM, the required rate of return for stock C is %. (Round to two decimal places
You wish to combine two stocks, Encor and Maestro, into a portfolio with an expected return of 16.9 percent. The expected return of Encor is 2.9 percent with a standard deviation of 1 percent. The expected return of Maestro is 26.8 percent with a standard deviation of 10.9 percent. The correlation between the two stocks is 0.4. What is the composition (weights) of the portfolio? (Round answer to 4 decimal places, e.g. 14.5125%.) Weight in Encor % Weight in Maestro % What is the portfolio standard deviation? (Round intermediate calculations to 7 decimal places, e.g. 0.5125129 and the final answer to 4 decimal places, e.g. 14.5125%.) Standard deviation %

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