You are provided with the following sample observations relating to historical rate of returns and their...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
You are provided with the following sample observations relating to historical rate of returns and their corresponding probabilities for individual assets, Brad and Ford: Obs 1 2 3 4 5 67890 10 Brad E(RB) -0.03 0.07 0.10 0.11 0.02 0.15 Prob 0.01 0.09 0.10 0.20 0.05 0.25 0.08 0.05 0.09 0.10 0.12 0.10 0.05 0.05 Obs 1 2 3 4 5 6 7 8 9 10 Ford E(RF) -0.01 0.10 0.15 0.20 0.08 0.25 0.13 0.09 0.11 0.06 Prob 0.01 0.09 0.10 0.20 0.05 0.25 0.05 0.10 0.10 0.05 Required: Based on the following information (Note: You can use Microsoft Excel functions to expedite your calculations. Please show answers up to two digits after decimal point): a) Calculate the expected rate of return for each individual asset. b) Calculate the standard deviation of returns for each individual asset. (4 marks) (4 marks) c) Assume that the correlation coefficient between the two assets is -1 (perfectly negatively correlated). Calculate the weighted average rate of returns and standard deviation of returns for the hypothetical portfolios containing the combination of the two assets in varying weights as indicated below. Then, choose a recommended portfolio. Summarize your answers in the following table. For example, for Brad - Ford portfolio: Portfolio 1 2 3 4 5 6 7 8 9 10 11 Brad 1.0 0.9 0.8 0.7 0.6 Weight 0.5 0.4 0.3 0.2 0.1 0.0 Ford 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 Weighted average rate of return Standard deviation of returns Recommended portfolio (please tick √ only one) O For each of the portfolios in (c) above, plot the portfolio risk-return for different weights of assets (Note: For the risk-return plots, return is on vertical axis and risk is on horizontal axis). e) Discuss what do you learn from this analysis including factors to be considered in choosing a preferred portfolio. You are provided with the following sample observations relating to historical rate of returns and their corresponding probabilities for individual assets, Brad and Ford: Obs 1 2 3 4 5 67890 10 Brad E(RB) -0.03 0.07 0.10 0.11 0.02 0.15 Prob 0.01 0.09 0.10 0.20 0.05 0.25 0.08 0.05 0.09 0.10 0.12 0.10 0.05 0.05 Obs 1 2 3 4 5 6 7 8 9 10 Ford E(RF) -0.01 0.10 0.15 0.20 0.08 0.25 0.13 0.09 0.11 0.06 Prob 0.01 0.09 0.10 0.20 0.05 0.25 0.05 0.10 0.10 0.05 Required: Based on the following information (Note: You can use Microsoft Excel functions to expedite your calculations. Please show answers up to two digits after decimal point): a) Calculate the expected rate of return for each individual asset. b) Calculate the standard deviation of returns for each individual asset. (4 marks) (4 marks) c) Assume that the correlation coefficient between the two assets is -1 (perfectly negatively correlated). Calculate the weighted average rate of returns and standard deviation of returns for the hypothetical portfolios containing the combination of the two assets in varying weights as indicated below. Then, choose a recommended portfolio. Summarize your answers in the following table. For example, for Brad - Ford portfolio: Portfolio 1 2 3 4 5 6 7 8 9 10 11 Brad 1.0 0.9 0.8 0.7 0.6 Weight 0.5 0.4 0.3 0.2 0.1 0.0 Ford 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 Weighted average rate of return Standard deviation of returns Recommended portfolio (please tick √ only one) O For each of the portfolios in (c) above, plot the portfolio risk-return for different weights of assets (Note: For the risk-return plots, return is on vertical axis and risk is on horizontal axis). e) Discuss what do you learn from this analysis including factors to be considered in choosing a preferred portfolio.
Expert Answer:
Answer rating: 100% (QA)
Lets start by calculating the expected rate of return and the standard deviation for each individual ... View the full answer
Related Book For
Accounting Principles
ISBN: 978-0470533475
9th Edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
Posted Date:
Students also viewed these finance questions
-
3) Write a code to perform the following:- A) Set bit 7 (the most significant bit) of memory location $1000 and leave the other bits unaffected. B) Clear bit 0 (the least significant bit) of memory...
-
A survey of information systems managers was used to predict the yearly salary of beginning programmer/analysts in a metropolitan area. Managers specified their standard salary for a beginning...
-
. A vertical pole that is 2 meters tall casts a shadow that is 1.5 meters long. Nearby, at the same time, another vertical pole casts a shadow that is 6.5 meters long. How tall is this pole? a. Make...
-
At Blossom Company, events and transactions during 2020 included the following. The tax rate for all items is 20%. (1) Depreciation for 2018 was found to be understated by $148000. (2) A strike by...
-
What are the key components of globalization and how can they influence collective bargaining?
-
The following financial statements and additional information are reported. (1) Prepare a statement of cash flows using the indirect method for the year ended June 30, 2021. (2) Compute the companys...
-
Consider the following data for the years operations of an automobile dealer: The president of the dealership has long regarded the markup on material and labour for the parts and service activity as...
-
Wine Accessories Inc. (WAI) produces two models of corkscrews, the standard model and a deluxe model.WAI follows a level aggregate plan, producing 20,000 corkscrews per month, or 5000 corkscrews per...
-
Budgeted Income Statement and Balance Sheet As a preliminary to requesting budget estimates of sales, costs, and expenses for the fiscal year beginning January 1, 2019, the following tentative trial...
-
On January 1. Ruiz Company issued bonds as follows: Face Value: Number of Years: Stated Interest Rate: Interest payments per year 500,000 15 7% Required: 1) Calculate the bond selling price given the...
-
PDo Homework-Chapter 12 Homework-Google Chrome mylab.pearson.com/Student/PlayerHomework.asp?homeworkid-627014307&questionid=1&flushed=false&cid=69857998 centerwin-yes ACCT-2301.913: Principles of...
-
Discuss the following verbal communication techniques and how you would use them within your practice as an educator and give two examples for each. Tone of voice Verbal cues Open and closed...
-
1.King Corp., uses 10,000 units of Part X to be used in its production cycle.King can make or buy Part X. If King buys the part from Utica Company, King could not use the released facilities in...
-
Suppose you are the Google manager in charge of making the decision about whether to introduce self-driving cars as a product for the general public. Suppose that if the car is introduced, there is a...
-
Elsinore Electronics is a decentralized organization that evaluates divisional management based on measures of divisional contribution margin. Home Audio (Home) Division and Mobile Electronics...
-
Information to calculate the adjusted cash balance for Everest Climbing Gear is as follows: Cash balance per general ledger $4,000 Customer's cheque returned--NSF 150 Bank service charges 80 Deposits...
-
.Hello i need help on this question as i am getting note 3incorrect as you can see for the non current portion Shamrock Enterprises has three notes payable outstanding on December 31, 2024, as...
-
Flicker, Inc., a closely held corporation, acquired a passive activity this year. Gross income from operations of the activity was $160,000. Operating expenses, not including depreciation, were...
-
Jims Hat Shop received a shipment of hats for which it paid the wholesaler $2,970. The price of the hats was $3,000 but Jims was given a $30 cash discount and required to pay freight charges of $50....
-
Rodriquez Company has the following payroll procedures. (a) Supervisor approves overtime work. (b) The human resources department prepares hiring authorization forms for new hires. (c) A second...
-
Windsor Advertising Companys trial balance at December 31 shows Advertising Supplies $6,700 and Advertising Supplies Expense $0. On December 31, there are $2,700 of supplies on hand. Prepare the...
-
Money and foreign exchange markets in London and New York are very efficient. You have the following information: Assuming parity conditions hold: a. Estimate inflation in the United States next...
-
Henri Jacque, an arbitrager with Bank of Montreal, faces the following Canadian dollar/U.S. dollar quotes: Henri Jacque is authorized to use C \(\$ 20,000,000\) or its U.S. dollar equivalent. The...
-
Ayako Miyake is a currency arbitrager for Atsugi Bank in Kanagawa. The spot rate this morning is \( 110.60 / \mathrm{S}\), and early indications are the 90 -day interest rates in the United States...
Study smarter with the SolutionInn App