The volatility (standard deviation) of the portfolio when the number of stock becomes arbitrarily large. Introduction: Standard deviation refers to the deviation of the actual returns from the expected returns.

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Answer 1

Question

Chapter 11, Problem 18P

a)

Summary Introduction

To determine: The volatility (standard deviation) of the portfolio when the number of stock becomes arbitrarily large.

Introduction:

Standard deviation refers to the deviation of the actual returns from the expected returns.

b)

Summary Introduction

To determine: The average correlation of each stock with the large portfolio.

Introduction:

Portfolio refers to a set of financial investments owned by the investor. The portfolio of investments includes debentures, stocks, bonds, and mutual funds.

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Suppose 0.3 is the correlation of returns between any two stocks in an equal-weighted portfolio containing N stocks. Suppose the volatility of any stock is 25%. Calculate the volatility of a portfolio with · N = 24 stocks · N = 100 stocks · N = infinite stocks

If a given stock in the portfolio had established 1.23 beta; the related expected return is at 11.7percent, and 3.5percent is the current earning of a risk-free asset; a. Determine the expected return on a portfolio that is equally invested in the two assets? b. If a portfolio of the two assets has a beta of 0.7, what are the portfolio weights? c. If a portfolio of the two assets has an expected return of 9%, what is its beta? d. If a portfolio of the two assets has a beta of 2.46, what are the portfolio weights? How do you interpret the weights for the two assets in this case? Discuss.

Consider an equally weighed portfolio of stocks in which each stock has a volatility of 40%, and the correlation between each pair of stocks is 27%. Required: 1. What is the volatility of the portfolio as the number of stocks becomes arbitrarily large? 2.What is the average correlation of each stock with this large portfolio?

Answer 2

Question

Chapter 11, Problem 18P

a)

Summary Introduction

To determine: The volatility (standard deviation) of the portfolio when the number of stock becomes arbitrarily large.

Introduction:

Standard deviation refers to the deviation of the actual returns from the expected returns.

b)

Summary Introduction

To determine: The average correlation of each stock with the large portfolio.

Introduction:

Portfolio refers to a set of financial investments owned by the investor. The portfolio of investments includes debentures, stocks, bonds, and mutual funds.

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Answer 3

Question

Chapter 11, Problem 18P

a)

Summary Introduction

To determine: The volatility (standard deviation) of the portfolio when the number of stock becomes arbitrarily large.

Introduction:

Standard deviation refers to the deviation of the actual returns from the expected returns.

b)

Summary Introduction

To determine: The average correlation of each stock with the large portfolio.

Introduction:

Portfolio refers to a set of financial investments owned by the investor. The portfolio of investments includes debentures, stocks, bonds, and mutual funds.

Expert Solution & Answer

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Answer 4

Question

Chapter 11, Problem 18P

a)

Summary Introduction

To determine: The volatility (standard deviation) of the portfolio when the number of stock becomes arbitrarily large.

Introduction:

Standard deviation refers to the deviation of the actual returns from the expected returns.

b)

Summary Introduction

To determine: The average correlation of each stock with the large portfolio.

Introduction:

Portfolio refers to a set of financial investments owned by the investor. The portfolio of investments includes debentures, stocks, bonds, and mutual funds.

Expert Solution & Answer

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Answer 5

Chapter 11, Problem 18P

a)

Summary Introduction

To determine: The volatility (standard deviation) of the portfolio when the number of stock becomes arbitrarily large.

Introduction:

Standard deviation refers to the deviation of the actual returns from the expected returns.

b)

Summary Introduction

To determine: The average correlation of each stock with the large portfolio.

Introduction:

Portfolio refers to a set of financial investments owned by the investor. The portfolio of investments includes debentures, stocks, bonds, and mutual funds.

Answer 6

Chapter 11, Problem 18P

a)

Summary Introduction

To determine: The volatility (standard deviation) of the portfolio when the number of stock becomes arbitrarily large.

Introduction:

Standard deviation refers to the deviation of the actual returns from the expected returns.

Answer 7

Chapter 11, Problem 18P

a)

Summary Introduction

To determine: The volatility (standard deviation) of the portfolio when the number of stock becomes arbitrarily large.

Introduction:

Standard deviation refers to the deviation of the actual returns from the expected returns.

Answer 8

b)

Summary Introduction

To determine: The average correlation of each stock with the large portfolio.

Introduction:

Portfolio refers to a set of financial investments owned by the investor. The portfolio of investments includes debentures, stocks, bonds, and mutual funds.

Answer 9

b)

Summary Introduction

To determine: The average correlation of each stock with the large portfolio.

Introduction:

Portfolio refers to a set of financial investments owned by the investor. The portfolio of investments includes debentures, stocks, bonds, and mutual funds.

Answer 10

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Answer 11

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Answer 12

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Answer 13

Ch. 11.1 - What is a portfolio weight?Ch. 11.1 - How do we calculate the return on a portfolio?Ch. 11.2 - What does the correlation measure?Ch. 11.2 - How does the correlation between the stocks in a...Ch. 11.3 - Prob. 1CC Ch. 11.3 - Prob. 2CC Ch. 11.4 - Prob. 1CC Ch. 11.4 - Prob. 2CC Ch. 11.4 - Prob. 3CC Ch. 11.5 - What do we know about the Sharpe ratio of the...

The volatility (standard deviation) of the portfolio when the number of stock becomes arbitrarily large. Introduction: Standard deviation refers to the deviation of the actual returns from the expected returns.

Solution Summary: The author explains the volatility of the portfolio when the number of stocks becomes arbitrarily large. The average correlation of each stock is 44.72%.

Concept explainers

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To determine: The volatility (standard deviation) of the portfolio when the number of stock becomes arbitrarily large.

Introduction:

Standard deviation refers to the deviation of the actual returns from the expected returns.

To determine: The average correlation of each stock with the large portfolio.

Introduction:

Portfolio refers to a set of financial investments owned by the investor. The portfolio of investments includes debentures, stocks, bonds, and mutual funds.

Want to see the full answer?

Chapter 11 Solutions

The volatility (standard deviation) of the portfolio when the number of stock becomes arbitrarily large. Introduction: Standard deviation refers to the deviation of the actual returns from the expected returns.

Solution Summary: The author explains the volatility of the portfolio when the number of stocks becomes arbitrarily large. The average correlation of each stock is 44.72%.

Concept explainers

Videos

To determine: The volatility (standard deviation) of the portfolio when the number of stock becomes arbitrarily large. Introduction: Standard deviation refers to the deviation of the actual returns from the expected returns.

To determine: The average correlation of each stock with the large portfolio. Introduction: Portfolio refers to a set of financial investments owned by the investor. The portfolio of investments includes debentures, stocks, bonds, and mutual funds.

Want to see the full answer?

Chapter 11 Solutions

To determine: The volatility (standard deviation) of the portfolio when the number of stock becomes arbitrarily large.

Introduction:

Standard deviation refers to the deviation of the actual returns from the expected returns.

To determine: The average correlation of each stock with the large portfolio.

Introduction:

Portfolio refers to a set of financial investments owned by the investor. The portfolio of investments includes debentures, stocks, bonds, and mutual funds.