Find out the 1- standard deviation 2- variance weight Investment*expected return stock weight Investment Investment Amount expected return stock stocks 0.261 1.45 75000 0.18 Alba Co. 0.0504 0.56 75000 0.09 Batelco Co. 0.0371 0.1 75000 0.371 Delmon poultry. 0.3485   225000   Total

Covariance with Mean Return Stock AOL Microsoft Intel AOL .002 .001 15% Microsoft .001 .002 .001 12 Intel 001 .002 10 5.2. Compute the tangency portfolio weights assuming a risk-free asset yields 5 percent.

Investment Standard Assets Expected return Correlation Beta weight Deviation Asset A 15.00% 30.00% 45.00% Corr A.B = 0.60 1.21 Asset B 45.00% 24.00% 20.00% Corr A.C = -0.45 1.17 Asset C 40.00% 16.00% 15.00% Corr B.C = 0.24 0.65 Questions 1. Calculate expected return of portfolio with all 3 risky assets 2. Calculate Standard deviation of portfolio with all 3 risky assets 3. Assume you sell out Asset A, and replace it with T-Bill, using the same investment weight. Calculate expected return of portfolio of T-Bill and 2 risky assets (Asset B, and C) Answers % % % 4. Assume you sell out Asset A, and replace it with T-Bill, using the same investment weight. Calculate standard deviation of portfolio of T-Bill and 2 risky assets (Asset B, and C) % 5. Calculate beta of portfolio with all 3 risky assets (round to 2 digits after decimal). 6. Use CAPM, calculate required rate of return of all 3 risky assets. 7. Use CAPM, assume you add a new asset, Asset D, into portfolio. You adjust your…

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