Suppose that there exist two securities (A and B) with annual expected returns equal to ...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Suppose that there exist two securities (A and B) with annual expected returns equal to ₁ = 3% and B = 5% and standard deviations equal to OA = 7% and OB = 10% respectively. The correlation coefficient between the returns of these securities is p = -0.5. 2.1 What is the expected return and the standard deviation of a portfolio consisting of the securities A and B, if the relevant weights are chosen to minimize the risk of the portfolio? Present the minimisation problem and describe every step of your calculations in detail. 2.2 How could an investor maximize diversification benefits? Critically discuss and explain in detail. Q Suppose that there exist two securities (A and B) with annual expected returns equal to ₁ = 3% and B = 5% and standard deviations equal to OA = 7% and OB = 10% respectively. The correlation coefficient between the returns of these securities is p = -0.5. 2.1 What is the expected return and the standard deviation of a portfolio consisting of the securities A and B, if the relevant weights are chosen to minimize the risk of the portfolio? Present the minimisation problem and describe every step of your calculations in detail. 2.2 How could an investor maximize diversification benefits? Critically discuss and explain in detail. Q
Expert Answer:
Answer rating: 100% (QA)
22 Maximizing Diversification Benefits Diversification benefits can be maximized by selecting assets ... View the full answer
Related Book For
Corporate Finance
ISBN: 9781265533199
13th International Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
Posted Date:
Students also viewed these finance questions
-
For Problems 5962, the lines that bisect each angle of a triangle meet in a single point O, and the perpendicular distance r from O to each side of the triangle is the same. The circle with center at...
-
calculated revenue and profitability for Nike from 2014 to 2018. Exhibit 2: Nike, Inc. Key Financial Data, 2014-2018 ($ millions, except EPS data)* Fiscal Year Cash and short-term investments...
-
02. The competitive exclusion principle only applies when the niches of competing species have a high degree of overlap. O True False 54bmit Q3. Four snake species colonize an island at the same...
-
Muscarine is a poisonous substance present in the mushroom Amanita muscaria. Its structure is represented by the constitution shown.
-
In Exercises use the integration capabilities of a graphing utility to approximate the volume of the solid generated by revolving the region bounded by the graphs of the equations about the x-axis. y...
-
Why must amphibians live in moist habitats?
-
1. Would a lab experiment or a field experiment be more valid in determining whether Tooheys could cause a normal beer consumer to become intoxicated? Explain. 2. Describe an alternate research...
-
Solve the equation. Check the solution. 4 (2x-1)=-1-1 7 7
-
Thaarugo,inc, produces a GPS device that is becoming popular in parts of Scandinavia. When Thaarugo produces one of these, a printed circuit board (PCB) is used and it is populated with several...
-
Fines under the occupational health and safety act could be up to: Question 17 options: a) Individuals $50,000 or 12 months in jail, Corporations $ 1,000,000 b) Individuals $50,000 or 12 months in...
-
The potential difference applied to a circuit element remains constant as the resistance of the element is varied. What happens to the power as the resistance is quadrupled? a) halved c) doubled b)...
-
Nizwa industries issued bonds in the Muscat stock exchange with 5 0 0 0 OMR face value and a 8 percent annual coupon rate. The maturity yield in the Muscat stock market on these bonds is 9 percent,...
-
1. The figure below represents the position of a particle as it travels along the x-axis. x(m) 4 2- -2 2 3 4 t(s) Using the scale given in the graph and your best approximation of certain points on...
-
C) Mohammad Salah is a wealthy footballer who plays for Liverpool FC in the English premier league. He decides to donate for Bethlehem University to funds its facilities. Every five years, Salah will...
-
A bond has a face value of 1,000, a 12% yield-to-maturity (APR), and 6 years to maturity. The bond has a 10% coupon rate and makes semi-annual payments. Compute the bond value.
-
Write an essay that covers the following topics: - Explain the meaning of cost objects, direct costs, and indirect costs (provide example). -Describe the difference between a fixed cost and variable...
-
H.J. Heinzs annual dividends were as follows: 1990 ..............$0.540 1991.............. 0.620 1992 .............. 0.700 1993.............. 0.780 1994 .............. 0.860 1995 .............. 0.940...
-
A firm offers terms of 1y10, net 30. What effective annual interest rate does the firm earn when a customer does not take the discount? Without doing any calculations, explain what will happen to...
-
In a previous example, Mark Young received $50,000 a year for 20 years from the state lottery. In that example, he was to receive the first payment in one year. Let us now assume that the first...
-
Paige Ouimet wants to buy a tugboat today. Rather than paying immediately, she offers to pay $150,000 in three years. It will cost Tugboat Corp. $115,830 to build the tugboat immediately. The...
-
The current weighted average cost of capital (WACC) for Van der Welde is 10%. The company announced a debt offering that raises the WACC to 13%. The most likely conclusion is that for Van der Welde:...
-
According to Modigliani and Millers Proposition II without taxes: A. the capital structure decision has no effect on the cost of equity. B. investment and the capital structure decisions are...
-
In April, several employees of Javatech, Inc., a computer hardware developer with 250 employees, started organizing the Javatech Employees Union (JEU). When Javatech refused to voluntarily recognize...
Study smarter with the SolutionInn App