PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 7, Problem 20PS
Portfolio risk* Hyacinth Macaw invests 60% of her funds in stock I and the balance in stock J. The standard deviation of returns on I is 10%, and on J it is 20%. Calculate the variance and standard deviation of portfolio returns, assuming
- a. The correlation between the returns is 1.0.
- b. The correlation is .5.
- c. The correlation is 0.
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An investiment portfolio consists of two securities, X and Y. The weight of X is 30%.
Asset X's expected return is 15% and the standard deviation is 28%.
Asset Y's expected return is 23% and the standard deviation is 33%.
Assume the correlation coefficient between X and Y is 0.37.
A. Calcualte the expected return of the portfolio.
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Hyacinth Macaw invests 50% of her funds in stock I and the balance in stock J. The standard deviation of returns on I is 15%, and on J it
is 20%.
Note: Use decimals, not percents, in your calculations.
a. Calculate the variance and standard deviation of portfolio returns, assuming the correlation between the returns is 1.
b. Calculate the variance and standard deviation of portfolio returns, assuming the correlation is 0.3.
c. Calculate the variance and standard deviation of portfolio returns, assuming the correlation is 0.
Note: For all requirements, do not round intermediate calculations. Round your answers to 4 decimal places.
a. Variance
Standard deviation
b. Variance
Standard deviation
c. Variance
Standard deviation
c) Stock 1 has a standard deviation of return of 1%. Stock 2 has a standard deviation of return of 8%. The correlation coefficient between the two stocks is 0.5. If you invest 60% of your funds in stock 1 and 40% in stock 2, what is the standard deviation of your portfolio? Please provide the details of your calculations and discuss your results.
Chapter 7 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 7 - Rate of return The level of the Syldavia market...Ch. 7 - Real versus nominal returns The Costaguana stock...Ch. 7 - Arithmetic average and compound returns Integrated...Ch. 7 - Risk premiums Here are inflation rates and U.S....Ch. 7 - Risk Premium Suppose that in year 2030, investors...Ch. 7 - Stocks vs. bonds Each of the following statements...Ch. 7 - Expected return and standard deviation A game of...Ch. 7 - Standard deviation of returns The following table...Ch. 7 - Average returns and standard deviation During the...Ch. 7 - Prob. 10PS
Ch. 7 - Prob. 11PSCh. 7 - Diversification Here are the percentage returns on...Ch. 7 - Risk and diversification In which of the following...Ch. 7 - Prob. 14PSCh. 7 - Portfolio risk To calculate the variance of a...Ch. 7 - Portfolio risk a) How many variance terms and how...Ch. 7 - Portfolio risk Table 7.8 shows standard deviations...Ch. 7 - Portfolio risk Hyacinth Macaw invests 60% of her...Ch. 7 - Stock betas What is the beta of each of the stocks...Ch. 7 - Stock betas There are few, if any, real companies...Ch. 7 - Portfolio betas A portfolio contains equal...Ch. 7 - Portfolio betas Suppose the standard deviation of...Ch. 7 - Portfolio risk Here are some historical data on...Ch. 7 - Portfolio risk Suppose that Treasury bills offer a...
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