Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN: 9781337395083
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Textbook Question
Chapter 3, Problem 3P
Two-Asset Portfolio
Stock A has an expected return of 12% and a standard deviation of 40%. Stock B has an expected return of 18% and a standard deviation of 60%. The correlation coefficient between Stocks A and B is 0.2. What are the expected return and standard deviation of a portfolio invested 30% in Stock A and 70% in Stock B?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
An investment portfolio has 45% invested in stock A and 55% invested in stock B. The standard deviations of A and B are 12% and 17%, respectively, and the portfolio’s standard deviation is 14%. What is the correlation coefficient between the two stocks?
Two Asset Portfolio- Stock A has an expected return of 12% and a standard deviation of 40%. Stock B has an expected return of 18% and a standard deviation of 60%. The correlation between Stock A and B is 0.2. What are the expected return and standard deviation of a portfolio invested 30% in Stock A and 70% in Stock B? (Please show work)
Company A’s stock has an expected return of 0.10 and a standard deviation of 0.25. Company B’sstock has an expected return of 0.16 and a standard deviation of 0.40. The correlation coefficientbetween the two stock’s return is 0.2. If a portfolio consists of 40% of Company A and 60% ofCompany B, what’s the expected return of the portfolio?
Chapter 3 Solutions
Intermediate Financial Management (MindTap Course List)
Ch. 3 - Security A has an expected rate of return of 6%, a...Ch. 3 - The standard deviation of stock returns for Stock...Ch. 3 - APT
An analyst has modeled the stock of Crisp...Ch. 3 - Two-Asset Portfolio
Stock A has an expected return...Ch. 3 - Prob. 4PCh. 3 - You have been hired at the investment firm of...Ch. 3 - You have been hired at the investment firm of...Ch. 3 - You have been hired at the investment firm of...Ch. 3 - You have been hired at the investment firm of...Ch. 3 - You have been hired at the investment firm of...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Consider two types of assets: market portfolio (M) and stock A. The expected return is 8% and standard deviation of the market portfolio is 15%. The risk-free rate is 2%. The standard deviation of market portfolio returns is 15%. The standard deviation of stock A is 30%, and the beta coefficient is 1. Draw the capital market line and show the position of stock A.arrow_forwardUsing the data in the following table, calculate the volatility (standard deviation) of a portfolio that is 75% invested in stock A and 25% in stock B.arrow_forwardA portfolio is composed of two stocks, A and B. Stock A has a standard deviation of return of 24%, while stock B has a standard deviation of return of 18%. Stock A comprises 60% of the portfolio, while stock B comprises 40% of the portfolio. If the variance of return on the portfolio is .0380, the correlation coefficient between the returns on A and B is _________. ) .583 ) .225 ) .327 ) .128arrow_forward
- Consider two stocks, Stock D, with an expected return of 13 percent and a standard deviation of 30 percent, and Stock I, an international company, with an expected return of 16 percent and a standard deviation of 41 percent. The correlation between the two stocks is 0.4. What is the weight of stock D in the minimum variance portfolio?arrow_forwardGiven the following information, calculate the expected return and standard deviation for a portfolio that has 35 percent invested in Stock A, 45 percent in Stock B, and the balance in Stock C.arrow_forwardStock A has an expected return of 10% and a standard deviation of 20%. Stock B has an expected return of 13% anda standard deviation of 30%. The risk-free rate is 5% and the market risk premium is 6%. Assume that the marketis in equilibrium. Portfolio AB has 50% invested in Stock A and 50% invested in Stock B. The returns of Stock A andStock B are independent of one another, i.e., the correlation coefficient between them is zero. What is Stock B’sbeta?arrow_forward
- The data on the expected return of 2 stocks (M and C) along with the economic conditions and their probabilities is attached below Questions : Calculate the expected return for asset M and asset C. Calculate the standard deviation for asset M and asset C. c) If asset M is a market portfolio, while the beta (β) for asset C is 1.25 and the risk-free asset is 6%. What is the required rate of return for asset C according to the CAPM method ?. .arrow_forwardTable attached shows the historical returns for Companies A, B and C If one investor has a portfolio consisting of 70% Company A and 30% Company B, what are the average portfolio return and standard deviation? What is Sharpe ratio if the risk-free rate is 3.5%? 2. If another investor has a portfolio consisting of 1/3 Company A, 1/3 Company B and 1/3 Company C, what are the average portfolio return and standard deviation? What is Sharpe ratio if the risk-free rate is 3.5%?arrow_forwardExpected returns and standard deviations of three risky assets are as follows: Expected Return Standard Deviations Correlations A B C A 11% 30% 1.0 0.3 0.15 B 14.5% 45% 0.3 1.0 0.45 C 9% 30% 0.15 0.45 1.0 1. Calculate the expected return and standard deviations of a portfolio of stocks A, B and C. Assume an equal investment in each stock. 2. Compute the Sharpe ratio of a portfolio that has 30% in A, 30% in B and 40% in C. The risk-free interest rate is 4%. 3. Assume a portfolio of asset B and C. Determine the weight in asset B, such that the total portfolio risk is minimized.arrow_forward
- Consider two high-risk stocks, X and Y. The expected return on stock Y is 16%, with a standard deviation of 13%. The expected return on stock X is 20%, with a standard deviation of 25%. The correlation between the returns of X and Y is + 0.3. What is the expected return and standard deviation of 40% of Y investment and 60% of the portfolio of X investment?arrow_forwardSuppose you have a portfolio consisting of two assets, A and B. Stock A has an expected return of 14% and a standard deviation of 31%. Stock B has an expected return of 10% and a standard deviation of 15%. Stocks A and B have a correlation of 0.98. Assuming you invest $7,000 in stock A and $3,000 in stock B, what is the standard deviation of your portfolio? 35.1% 19.4% 26.1% 14.1%arrow_forwardtwo stocks, A and B, are perfectly correlated. Stock A has an expected return of 0.15 and a volatility of 0.25. stock B has an expected return of 0.20 and a volatility of 0.30. what is the expected return volatility of the portfolio consisting of 45% of stock A and 55% of stock B?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage LearningEBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Chapter 8 Risk and Return; Author: Michael Nugent;https://www.youtube.com/watch?v=7n0ciQ54VAI;License: Standard Youtube License