EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 8, Problem 13P
Summary Introduction
To determine: Expected return and standard deviation of the portfolio.
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A portfolio that combines the risk-free asset and the market portfolio has an expected
return of 6.2 percent and a standard deviation of 9.2 percent. The risk-free rate is 3.2
percent, and the expected return on the market portfolio is 11.2 percent. Assume the
capital asset pricing model holds. What expected rate of return would a security earn if it
had a .37 correlation with the market portfolio and a standard deviation of 54.2
percent? (Do not round intermediate calculations and enter your answer as a percent
rounded to 2 decimal places, e.g., 32.16.)
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.
Compute and justify the expected rate of return would a security earn if it had a 0.45 correlation with the market portfolio and a standard deviation of 55 percent.
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.
B. Calculate the standard deviation of the portfolio return.
C. Suppose now the investor decides to add some risk free assets into this portfolio.
The new weights of X, Y and risk free assets are 0.21, 0.49 and 0.30. What is the standard deviation of the new portfolio?
Chapter 8 Solutions
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Ch. 8 - Prob. 1QTDCh. 8 - Prob. 2QTDCh. 8 - Prob. 3QTDCh. 8 - Prob. 4QTDCh. 8 - Prob. 5QTDCh. 8 - Prob. 6QTDCh. 8 - Prob. 7QTDCh. 8 - Prob. 8QTDCh. 8 - Prob. 9QTDCh. 8 - Prob. 10QTD
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