a. Find the expected return for each project.b. Find the proportion of funds in each project to achieve an expected portfolio return of 20%.(c) Calculate the correlation coefficient between projects A and B.d) Find the portfolio risk. State and Prob. Project A'sreturnGood. 30%Average 40%Poor 30%27185Project B'sreturn351520

Answered: State and Prob. Project A's return…

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State and Prob. Project A's return Good. 30% Average 40% Poor 30% 27 18 5 Project B's return 35 15 20

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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Question

a. Find the expected return for each project.

b. Find the proportion of funds in each project to achieve an expected portfolio return of 20%.

d) Find the portfolio risk.

State and Prob. Project A's
return
Good. 30%
Average 40%
Poor 30%
27
18
5
Project B's
return
35
15
20

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Evaluate the project to determine its acceptability using the following budgeting techniques or methods: Cash payback period Discounted payback period Net present value method (NPV) Internal rate of return (IRR) Modified internal rate of return (MIRR)
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Consider the following risk-return characteristics for funds A and B: Expected return Risk Fund A (Equity) 12% 20% Fund B (Debt) 9% 16% The correlation coefficient between the returns of fund A and fund B is 0.4. 1. Which Fund is riskier? Write 1 if your answer is Fund A, write 2 if your answer is Fund B, or write 3 if your answer is undetermined. 2.1 What is the weight of fund A in the minimum variance portfolio? 2.4 What is the risk of the minimum variance portfolio? 2.2 What is the weight of Fund B in the minimum variance portfolio? 2.3 What is the expected return of the minimum variance portfolio?
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