You invest in a portfolio of two stocks. The variance-covariance matrix of the two stocks is...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
You invest in a portfolio of two stocks. The variance-covariance matrix of the two stocks is given by : Stock A Stock B 0.05 0.15 Stock A 0.2 Stock B 0.05 The expected return of the two stocks are 0.1 and 0.08, respectively. Riskfree interest rate is 3%. a) If you invest 200 $ in Stock A, 300 $ in Stock B, and 100 in risk free asset (i.e. cash). Compute the volatility of your total portfolio (with both stocks and riskfree asset). b) What is the composition of the minimum variance stock portfolio? What is its expected return? c) What is the composition of the tangent portfolio? d) If Jack invests in a portfolio composed of cash and the tangent portfolio, and he estimates that the volatility of this portfolio is 0.16. What is the expected return of this portfolio? e) What is the Sharpe ratio of the above portfolio? What is the percentage of cash that Jack holds in the above portfolio? You invest in a portfolio of two stocks. The variance-covariance matrix of the two stocks is given by : Stock A Stock B 0.05 0.15 Stock A 0.2 Stock B 0.05 The expected return of the two stocks are 0.1 and 0.08, respectively. Riskfree interest rate is 3%. a) If you invest 200 $ in Stock A, 300 $ in Stock B, and 100 in risk free asset (i.e. cash). Compute the volatility of your total portfolio (with both stocks and riskfree asset). b) What is the composition of the minimum variance stock portfolio? What is its expected return? c) What is the composition of the tangent portfolio? d) If Jack invests in a portfolio composed of cash and the tangent portfolio, and he estimates that the volatility of this portfolio is 0.16. What is the expected return of this portfolio? e) What is the Sharpe ratio of the above portfolio? What is the percentage of cash that Jack holds in the above portfolio? You invest in a portfolio of two stocks. The variance-covariance matrix of the two stocks is given by : Stock A Stock B 0.05 0.15 Stock A 0.2 Stock B 0.05 The expected return of the two stocks are 0.1 and 0.08, respectively. Riskfree interest rate is 3%. a) If you invest 200 $ in Stock A, 300 $ in Stock B, and 100 in risk free asset (i.e. cash). Compute the volatility of your total portfolio (with both stocks and riskfree asset). b) What is the composition of the minimum variance stock portfolio? What is its expected return? c) What is the composition of the tangent portfolio? d) If Jack invests in a portfolio composed of cash and the tangent portfolio, and he estimates that the volatility of this portfolio is 0.16. What is the expected return of this portfolio? e) What is the Sharpe ratio of the above portfolio? What is the percentage of cash that Jack holds in the above portfolio? You invest in a portfolio of two stocks. The variance-covariance matrix of the two stocks is given by : Stock A Stock B 0.05 0.15 Stock A 0.2 Stock B 0.05 The expected return of the two stocks are 0.1 and 0.08, respectively. Riskfree interest rate is 3%. a) If you invest 200 $ in Stock A, 300 $ in Stock B, and 100 in risk free asset (i.e. cash). Compute the volatility of your total portfolio (with both stocks and riskfree asset). b) What is the composition of the minimum variance stock portfolio? What is its expected return? c) What is the composition of the tangent portfolio? d) If Jack invests in a portfolio composed of cash and the tangent portfolio, and he estimates that the volatility of this portfolio is 0.16. What is the expected return of this portfolio? e) What is the Sharpe ratio of the above portfolio? What is the percentage of cash that Jack holds in the above portfolio?
Expert Answer:
Answer rating: 100% (QA)
a To compute the volatility of the total portfolio we need to calculate the variance of the portfoli... View the full 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
-
Consider the following MATLAB code snippet for implementing Newton's method: while( norm(f(k)) > tol & k < maxk) d = feval(dfdx,x(k)); k = k + 1; x(k) = x(k-1) - f(k-1) / d; f(k) = feval(fnon,x(k));...
-
Your client's current portfolio is fully invested in a country index fund C with an expected return of rc=5% and a volatility of c=15%. The (global) market portfolio has an expected return of 8% and...
-
A firm has estimated its weighted average cost of capital to be 9% based on the fact that its after cost of debt financing is 7% and its cost of equity is 12%. What are the firm's capital structure...
-
If a large chilled water plant has 6 chillers and 5 of them are operating at 1 0 0 % , when the operator starts the 6 th chiller, to what percent do the first 5 chillers unload? What formula do you...
-
A corporation distributes a truck it has owned for three years to its sole shareholder. The shareholder will use the truck for business activity. The truck's fair market value at the time of the...
-
Lindy, a calendar-year U.S. corporation, bought inventory items from a supplier in Germany on November 5, 2008 for 100,000 euros, when the spot rate was $0.4295. At Lindys December 31, 2008,...
-
A business buys a car which costs 15,000. This price includes 500 for insurance and 60 for road tax. The business's name was painted on the side of the car at an additional cost of 160. The car is...
-
On December 1, Curt Walton began an auto repair shop, Waltons Quality Automotive. The following transactions occurred during December: Dec. 1 Walton contributed $55,000 cash to the business in...
-
Evaluate the function f(x)=x-9 at the given value of the variable. a. f(13) b. f(3) a. f(13)= (Simplify your answer.)
-
Pizza Corporation acquired 100 percent of Slice Company on January 1, 20X5, for $350,000. Following are selected account balances from Pizza and Slice Corporation as of December 31, 20X5: Item...
-
PP Land is a company doing a business of property development. Due to lack of its working capital, the financial statement of PP Land revealed that it was in a stagnant state of business for almost 3...
-
(a) (4 points) Describe what it means for a language to be computable (decidable), computably enumerable (c.e.) but not computable, and co-c.e. but not com- putable. (b) (6 points, 2 points each) For...
-
In contemporary times, the entrepreneur contributes his or her own initiative, skill and ingenuity in planning, organizing and administering the enterprise, assuming the chance of loss and gain. How...
-
We have operating and finance leases for datacenters, corporate offices, reasearch and development facilities, retail stores, and certain equipment. Our leases have remaining lease terms of 1 year to...
-
1. Given the following C program written for the MSP430 LaunchPad: #include int num [9]={1,1,0,1,0,1,0,1,0}; void main (void) { } WDTCTL-WDTPW | WDTHOLD; int i=0,zeros=0, ones=0; P1DIR=BITO+BIT6;...
-
For each of these three firms, answer the following questions: a.Is the overall enterprise profitable? b.Is the equity of the firm profitable? c.Would each firm improve its profit if it increased its...
-
AP8-5 LO8-3,8-5 Recording and Interpreting the Disposal of Three Long-Lived Assets (P8-5) During the current year ended December 31, Rank Company disposed of three different assets. On January 1 of...
-
Discuss whether responsible human resources management should apply different standards for the home company and suppliers, for developed countries and developing countries, and for large companies...
-
Suppose a company will issue new 20-year debt with a par value of $1,000 and a coupon rate of 9%, paid annually. The tax rate is 40%. If the flotation cost is 2% of the issue proceeds, then what is...
-
Suppose you are given the following information. The beta of company i, bi, is 1.1, the risk-free rate, rRF, is 7 percent, and the expected market premium, rM - rRF, is 6.5 percent. (Assume that ai =...
-
Shapland Inc. has fixed operating costs of $500,000 and variable costs of $50 per unit. If it sells the product for $75 per unit, what is the break-even quantity?
-
The following information has been taken from the accounts of Buttons Ltd for the year ended 30 September. During the year a dividend of 120,000 was announced and paid. Required: (a) Prepare a value...
-
Alkrom plc, an oil trader, commenced trading on 1 January and had the following opening statement of financial position. On 1 January Alkrom plc acquired offices at a cost of 4m, and 320,000 barrels...
-
Segmental information relating to Dali plc for the year to 31 December 2015 is shown below. Car Aircraft Boat parts parts parts Total Em Em m m Revenues from extemal customers 360 210 85 655...
Study smarter with the SolutionInn App