Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Transcribed Image Text:Expected retun 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
c. What is the expected return of a portfolio with 1 1 Data Table
d. What is the portfolio's variance and standard de
- X
Hint Make sure to round all intermediate calculatio
Swers yo
(Click on the following icon D in order to copy its contents into a spreadsheet.)
a. What is the expected return of asset J?
(Round to four decimal places.)
Return on
Return on
Return on
Probability
of State
State of
Asset J in
Asset Kin
State
0.200
0.140
0.040
Asset L in
Economy
State
State
Вoom
0.28
0.070
0.260
0.180
Growth
0.37
0.25
0.070
Stagnant
0.070
0.060
-0.210
Recession
0.10
0.070
-0.100
Print
Done
Transcribed Image Text:Expected return and standard deviation. Use the following information to answer the questions:
a. What is the expected retum 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 11% in asset J, 49% in asset K, and 40% 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 calculations to at least seven (7) decimal places. The input instructions, phrases in parenthesis after each answer box, only apply for the answers you will type.
a. What is the expected return of asset J?
(Round to four decimal places.)
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- Are the following statements true or false? Provide a short justification for vour answer. а) assets A, B, C, with expected returns and standard deviations: Suppose you are a mean-variance optimizer. The risk-free rate is 3%. There are three risky E [řA] = 10%, SD [řA] = 5% E [řB] = 15%, SD [řB] = 7% E [řc] = 12%, SD [ŕc] = 9% You cannot invest in all three risky assets. Instead, you have to choose whether to invest in only assets (A, B), or only assets (A, C). Asset B mean-variance dominates asset C, since it has higher return and lower standard deviation than asset C. Thus, as long as you are risk-averse, you would always prefer the set of assets (A, B) to the set assets (A, C). b) the same market B's. The covariance matrix between A, B, C is: Suppose the CAPM holds. Consider three stocks A, B, C. Suppose that assets A, B, C have 0.05 0.03 0.03 0.05 0.05 Assets A, B, C have the same variance. However, assets A and B are positively correlated with each other, so they have larger…arrow_forwardGiven Portfolio 1 Expected Return= 0.15 Portfolio variance = 0.001 Standard Deviation = 0.0316 and Portfolio 2 Expected Return= 0.173 Portfolio variance = 0.001011 Standard Deviation = 0.03179 Compare these results.arrow_forwardThe standard deviation of return on investment a is 0.10, while the standard deviation of return on investment b is 0.04. If the correlation coefficient between the returns on A and B is_____________. A. -0.0447 B. -0.0020 C. 0.0020 D. 0.0447arrow_forward
- Example 3 Inns oont alafrA Following Example 2, consider a porfolio with three assets S1, S2 and S3 which have expected rates of return 0.1,0.15 and 0.2 respectively, and variance-covariance matrix odni tanoma bszt a aitevi ot botoly 0.1 0.1 -0.1 0.1 0.2 0.1 ololles V = -0.1 0.1 0.6 vo ) isaas sod slais a at gaiteoo ottg ndi oda vodT (aldanoitesup als ot-lais wod ibuadala abnod on a) What is the optimal portfolio when up = worod of sidad = 0.2. adt yhalinie ini ba moe ja SOLUTION lo ano ot b) Use this piece of information and the earlier optimal portfolios from la aao e. Example 2 to find the quadratic equation relating of and up. ni bstni sd SOLUTION tar oad o bo s e) Hence draw a plot of the solutions, and identify the frontier port- Ldon to slar folios. it SOLUTION ods Btvni gatela dtarrow_forwardSame setup as question 4. The book talks about finding the return of the minimum variance portfolio (MVP) using this template. What is that value for this setup? I.e., what is the return on the MVP under the assumptions of Question 4? About 7.519 About 8.32% About 9.28% About 6.80%arrow_forwardAssume that we have three assets. The first one has expected return μ1 = 10% and standard deviation of return equal to σ1 = 0.14. The second has expected return μ2 = 20% and standard deviation of return equal to σ2 = 0.2. The third asset has expected return μ3 = 15%. We would like to determine the range of the standard deviation of the third asset so that non of the asset dominates another. This range is an interval with a lower bound a and an upper bound b. What equals the lower bound a of the interval? Please insert your result with two decimals.arrow_forward
- (a) XVW Ltd. currently holds a portfolio containing two assets; Asset 1 and Asset 2. If Er1 = 0.25, Er2 = 0.36, Er12 = 0.1, Er2 2 = 0.15 and Er1r2 = 0.125, where ri represents the return in asset i. Determine the optimal proportions in which each asset should be held if the company would like to minimize the variance of their portfolio %3Darrow_forwardTime series forecasting maybe used to predict future values of a variable by: A. A simple moving average B. A weighted moving average C. Exponential smoothing D. All of the abovearrow_forwardThe variance of expected returns is equal to the square root of the expected returns. a. True b. Falsearrow_forward
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