You have chosen a stock for your two-asset portfolio and you need to choose one more stock. Which of the following stocks minimizes the risk of your two-asset portfolio? O Stock 1 with a covariance of 3,411 O Stock 2 with a correlation coefficient of -0.62 O Stock 3 with a correlation coefficient of -0.17 O Stock 4 with a covariance of 1,100 O Stock 5 with a correlation coefficient of 0.66
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- Suppose you are an average risk-averse investor who can purchase only one of the following stocks. Which should you purchased? Explain your reasoning. Investment Expected Return, r Standard Deviation, (r Stock M 6.0% 4.0% Stock N 18.0 12.0 Stock O 12.0 7.0Given: Calculate the expected returns and expected standard deviations of a two-stock portfolio having a correlation coefficient of 0.70 under the following conditions a. w1 = 1.00 b. w1 = 0.75 c. w1 = 0.50 d. w1 = 0.25 e. w1 = 0.05 Plot the results on a return-risk graph. Without calculations, draw in what the curve would look like first if the correlation coefficient had been 0.00 and then if it had been −0.70.(Expected rate of return and risk) Syntex, Inc. is considering an investment in one of two common stocks. Given the information that follows, which investment is better, based on the risk (as measured by the standard deviation) and return? Common Stock A Probability 0.25 0,50 0.25 Probability 0.10 0.40 0.40 0.10 (Click on the icon in order to copy its contents into a apreadsheet) Common Stock B Return 10% 17% 18% Return -4% 7% 13% 20% G a. Given the information in the table, the expected rate of return for stock A is 15.5% (Round to two decimal places) The standard deviation of stock A is (Round to two decimal places.)
- From the following information, calculate covariance between stocks A and B and expected return and risk of a portfolio in which A and B are equally weighted.Which stock would be best recommend if investment in individual stock is to be made? Justify the answer using numerical calculations. Stock A Stock B Expected return 24% 35% Standard deviation 12% 18% Coefficient of correlation 0.65From the following information, calculate covariance between stocks A and B and expected return and risk of a portfolio in which A and B are equally weighted.Which stock would be recommend if investment in individual stock is to be made? Justify answer using numerical calculations. Stock A Stock B Expected return 24% 35% Standard deviation 12% 18% Coefficient of correlation 0.65 0.65(Expected rate of return and risk) Syntex, Inc. is considering an investment in one of two common stocks Given the information that filloors, which investment is better based on the risk (as measured by the standard deviation) and retum? Common Stock A Probability 0,20 0.60 0:20 Return 10% 17% 20% Common Stock B Probability 0.25 0.25 0.25 0.25 (Click on the icon in order to copy its contents into a spreadsheet) Return -6% 5% 16% 23% a. Given the information in the table, the expected rate of retum for stock Ais (Round to two decimal places)
- Suppose that three stocks (A, B, and C} and two common risk factors (1 and 2) have the following relationship: E(RA) = (1.1)A1 + (0.8)A2 E(RB) = (0.7)A1 + (0.6)A2 E(RC) = (0.3)A1 + (0.4)A2 a. If A1 = 4 percent and A2 = 2 percent, what are the prices expected next year for each of the stocks? Assume that all three stocks currently sell for $30 and will not pay a dividend in the next year. b. Suppose that you know that next year the prices for Stocks A, B, and C will actually be $31.50, $35.00, and $30.50. Create and demonstrate a riskless, arbitrage investment to take advantage of these mispriced securities. What is the profit from your investment? You may assume that you can use the proceeds from any necessary short sale. Problems 13 and 14 refer to the data contained in Exhibit 7.23, which lists 30 monthly excess returns to two different actively managed stock portfolios (A and B) and three different common risk factors (1, 2, and 3). {Note: You may find it…A stock with a beta of more than 1.0, when added to a portfolio with a beta of 1.0, will Select one: a. Decrease portfolio’s beta b. Decrease risk of stock c. Increase portfolio’s beta d. None of the above e. Increase risk of stockIf an investor that owns a portfolio with 3 stocks increases their portfolio to 30 stocks, which of the following is MOST LIKELY to happen? Select one: a. risk will increase b. risk would decrease c. Systematic risk would increase d. return would increase
- You are putting together a portfolio made up of four different stocks. However, you are considering two possible weightings per table below. What is the beta on each portfilio and which portfolio is riskier? a. -.05, 1.30. First portfolio is riskier b. .05, -1.30. Second portfolio is riskier c. 1.30, -.05. First portfolio is riskier d. -.05, 1.30. Second portfolio is riskier O O O a.. b.. C. . d.. Asset A B C Given Beta 2.5 1.0 0.5 -1.5 First Portfolio 10% 10% 40% 40% Second Portfolio 40% 40% 10% 10%The covariance between stocks A and B is 0.0014, standard deviation of stock A is 0.032, and standard deviation of stock B is 0.044. Which of the following is the most appropriate to depict the risk-return characteristics of a portfolio consisting of only stocks A and B, and explain why? E(R) E(R) E(R) В В A A А (A) (B) (C)25) Given the following correlation matrix, a risk-averse investor would most likely prefer which of the following 2-stock portfolios (all else equal)? Stock A B C D A +1 B +0.8 +1 C +0.2 -0.55 +1 D -0.15 -0.78 +0.3 +1 Select one or more: A and C. C and B A and B C and D. A and D D and B