There are two assets in the market A and B.A has an expected return of 8%...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
There are two assets in the market A and B.A has an expected return of 8% and a standard devi- ation of 10%. B has an expected return of 10% and a variance of 0.01. The correlation between A and B is 0.25. You cannot short. 1. What is the standard deviation of B? (Opt) 2. What is the minimum standard deviation of a portfolio consisting of A and B ? Describe that portfolio for K dollars to invest. What is the expected return of this portfolio? (0.5pt) 3. What is the minimum standard deviation for a portfolio with expected return of 10% ? (0.5pt) Hint: If there is only one portfolio that can achieve the target return of 10%, then it has automat- ically the largest standard deviation. There are two assets in the market A and B.A has an expected return of 8% and a standard devi- ation of 10%. B has an expected return of 10% and a variance of 0.01. The correlation between A and B is 0.25. You cannot short. 1. What is the standard deviation of B? (Opt) 2. What is the minimum standard deviation of a portfolio consisting of A and B ? Describe that portfolio for K dollars to invest. What is the expected return of this portfolio? (0.5pt) 3. What is the minimum standard deviation for a portfolio with expected return of 10% ? (0.5pt) Hint: If there is only one portfolio that can achieve the target return of 10%, then it has automat- ically the largest standard deviation.
Expert Answer:
Related Book For
Financial management theory and practice
ISBN: 978-1439078099
13th edition
Authors: Eugene F. Brigham and Michael C. Ehrhardt
Posted Date:
Students also viewed these finance questions
-
13. What is a lower bound for the price of 3-month call option on a non- dividend-paying stock when the stock price is $50, the strike price is $45, and the 3-month risk-free interest rate is 8%?...
-
KYC's stock price can go up by 15 percent every year, or down by 10 percent. Both outcomes are equally likely. The risk free rate is 5 percent, and the current stock price of KYC is 100. (a) Price a...
-
Knowing that two equal caps have been removed from a 10-in.-diameter wooden sphere, determine the total surface area of the remaining portion. 4 in 10 in.
-
The Metropolis Health System managers are also working on their budgets for next year. Each manager must annualize his or her staffing plan, and thus must convert staff net paid days worked to a...
-
Complete the balance sheet and sales information in the table that follows for J. White Industries using the following financial data: Total assets turnover: 1.5 Gross profit margin on sales: (Sales...
-
Tyler Company reported the following costs on its financial statements (in thousands): REQUIRED: Using the reserve disclosure for Tyler Company in problem 13 and the data presented in this problem,...
-
This information relates to Crofoot Real Estate Agency. Oct 1 Stockholders invest $30,000 in exchange for common stock of the corporation. 2. Hires an administrative assistant at an annual salary of...
-
asap please 1. Determine a maintenance priority by calculating Preventive Maintenance Factors (PMFs) for the three pieces of equipment listed in the table below. Clearly state which piece of...
-
Starting from an initial interval (2, 3) containing 5, we will simply take the midpoint of the interval and determine whether 5 is contained in which of the two subintervals divided by the midpoint,...
-
Two Separate Arby's Roast Beef store owners 5 miles away from each other (Darlene and Bradley) produce two goods (Arbys Roast Beef and Hamburgers). Consider their production decision over the course...
-
Agile approach is very common and popular among developers. There are some down sides, however. Describe what this method means you and present a scenario where Agile approach might not work and...
-
Consider the issue of optimal investments. Suppose you know of one asset that, every year, offers 5% return with 90% probability, delivering -10% return with 10% probability. Each year one can either...
-
Below are the questions to answer Describe the requirements for effective incentive plans. Distinguish among piecework rate, merit pay, commissions, and standard hour plans. Understand how merit pay...
-
The world of work in the 21st century continues to evolve. A few decades ago, employees were often members of a Union, and job security was typically "guaranteed" based on years of service, i.e., the...
-
Which of the following type of audit is compulsory for a listed company? O a. Value for money Audit O b. System Audit Oc. None of the options d. Management Audit Clear my choice
-
The senior management at Davis Watercraft would like to determine if it is possible to improve firm profitability by changing their existing product mix. Currently, the product mix is determined by...
-
The Taylor Toy Corporation currently uses an injection-molding machine that was purchased 2 years ago. This machine is being depreciated on a straight-line basis, and it has 6 years of remaining...
-
The Rivoli Company has no debt outstanding, and its financial position is given by the following data: The firm is considering selling bonds and simultaneously repurchasing some of its stock. If it...
-
What factors should a company consider when it decides whether to invest in a project today or to wait until more information becomes available?
-
Whenever Aliza buys a flashlight, she also always buys exactly two batteries along with it. Any more than two batteries will serve no purpose, because she will not be able to use them in the...
-
State governments in India levy a value-added tax on the sale of goods. The rate of this sales tax varies by type of good and by state. In Maharashtra, the general rate of sales tax is \(12.5 \%\),...
-
Divit enjoys watching team sports and considers tickets to kabaddi and badminton games to be perfect substitutes. Show his preference map. What is his utility function?
Study smarter with the SolutionInn App