Your portfolio has 20% invested in stock A and 80% invested in stock B. Stock A has an expected return of 10% and a volatility of 15%. Stock B has an expected return of 12% and volatility of 25%. The correlation between stock A and B is 0.3. What is the variance of your portfolio return? 0.0385 0.0587 O O 0.0445 0.0257
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- 10. Returns and Standard Deviations [LO1] Consider the following information: Rate of Return If State OccursQuestion 16 a. Based on the following information, calculate the expected return and standard deviation for each of the following stocks. What are the covariance and correlation between the returns of the two stocks? Calculate the portfolio return and portfolio standard deviation if you invest equally in each asset. Returns State of Economy Prob J K Recession 0.25 -0.02 0.034 Normal 0.6 0.138 0.062 Boom 0.15 0.218 0.092 b. A portfolio that combines the risk-free asset and the market portfolio has an expected return of 7 percent and a standard deviation of 10 percent. The risk-free rate is 4 percent, and the Page 7 of 33 expected return on the market portfolio is 12 percent. Assume the capital asset pricing model holds. What expected rate of return would a security earn if it had a .45 correlation with the market portfolio and a standard deviation of 55 percent? c. Suppose the risk-free rate is 4.2 percent and the market portfolio has an expected return of 10.9 percent. The market…2. A portfolio consists of two stocks: Stock Expected Return Standard Deviation Weight Stock 1 10% 15% 0.30 Stock 2 13% 20% ??? The correlation between the two stocks' return is 0.50 (a)Calculate the expected return and standard deviation of the portfolio. Expected Return: Standard Deviation:
- Portfolio Expected return Standard deviation Q 7.8% 10.5% R 10.0% 14.0% S 4.6% 5.0% T 11.7% 18.5% U 6.2% 7.5% (Q1) For each portfolio, calculate the risk premium per unit of risk (Sharpe ratio) that you expect to receive. Assume that the risk-free rate is 3.0%. (Q2) Using answers from Q1, which of these five portfolios is most likely to be the market portfolio and explain why. (200 words maximum)Question 2 You calculated that the average return of your portfolio is 3% and the standard deviation is 22%, what is the value at risk (VaR) at 5% for your portfolio? -33.3%Question: A portfolio consists of two stocks: Stock Expected Return Standard Deviation Weight Stock 1 10% 15% 0.30 Stock 2 13% 20% ??? The correlation between the two stocks’ return is 0.50(a) Calculate the expected return and standard deviation of the portfolio. Expected Return: Standard Deviation: b) (i) Briefly explain, in general, when there would be “benefits of diversification” (for any portfolio of two securities). (ii) Describe whether the above portfolio would exhibit “benefits of diversification” (and why). [No calculations are required.] (c) Show your calculations re: whether the above portfolio exhibits “benefits of diversification”and indicate whether it does/doesn’t (and why).
- The following information are available: [3] Stock A Stock B Expected Return 16% 12% Standard Deviation 5% 8% Coefficient of Correlation 0.60 What is the co-variance between stock A & B? What is the expected return and risk of a portfolio in which A and B have weights of 0.60 and 0.40 respectively?QUESTION 1 The probability distributions of expected returns for stocks XMX and BMX are as follows: Probability Stock XMX (%) Stock BMX (%) 0.10 (15) (25) 0.20 0.40 17 0.20 10 30 0.10 25 60 а. Calculate the expected return for stock XMX and BMX b. Calculate the variances, standard deviation and Coefficient of variation for stock ХMX and BMX. C. Which is the riskier of the two stocks? Why?Question 1. Calculate the variance and standard deviation of a portfolio of two stocks. Question 2. Suppose the volatility of stock 2 is 16%, but the weight of stock 2 in the portfolio is 15%, will there be any effect on the standard deviation of the portfolio?
- a. Based on the following information, calculate the expected return and standard deviation for each of the following stocks. What are the covariance and correlation between the returns of the two stocks? Calculate the portfolio return and portfolio standard deviation if you invest equally in each asset. Returns State of Economy Prob K Recession 0.25 -0.02 0.034 Normal 0.6 0.138 0.062 Boom 0.15 0.218 0.092 b. A portfolio that combines the risk-free asset and the market portfolio has an expected return of 7 percent and a standard deviation of 10 percent. The risk-free rate is 4 percent, and the expected return on the market portfolio is 12 percent. Assume the capital asset pricing model holds. What expected rate of return would a security earn if it had a .45 correlation with the market portfolio and a standard deviation of 55 percent? c. Suppose the risk-free rate is 4.2 percent and the market portfolio has an expected return of 10.9 percent. The market portfolio has a variance of…Exercise 6: a. Calculate the rate of return and standard deviation for the portfolio composed of 20% of the stocks A and 80% of the stocks B with the following characteristics: RA=10%, RB-20%, Sigma A=15%, Sigma B=30%, Correlation Coefficient =0.5. b. Assuming the short sale is possible, find the share of the stocks A and B in a portfolio D having an expected rate of return of 5%.Suppose a portfolio is given as follows: Securities Weight BPW CJW AJT O 6.0% O 5.0% 0.3 O 5.1% 0.4 O 7.0% Onone listed Expected Standard Return Deviation 6% 7% 0.3 5% What is the expected return of the portfolio (to 1 decimal place)? 6% 4% 3%