Question: Given the following expected return vector and variance-covariance matrix tor three assets: and given the fact that Pie Traynor's risky portfolio is split 50:50 between

Given the following vector and variance-covariance matrix tor three assets:

and given the fact that Pie Traynor's risky portfolio is split 50:50 between the two risky assets,
a. Which security of the three must be the riskfree asset? Why?
b. Calculate the expected return and standard deviation of Pie's portfolio.
c. If the riskfree asset makes up 25% of Pie's total portfolio, what are the total portfolio's expected return and standard deviation?

10.1 ER-7.8 5.0 210 60 0 VC' 60 900

Step by Step Solution

★★★★★

3.37 Rating (169 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

a The riskfree asset has a zero variance and has zero covariance with other ... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

801-B-A-I (7817).docx

120 KBs Word File

Students Have Also Explored These Related Accounting Questions!

Given the following expected returns and standard deviations, which asset should the financial manager select: Asset expected return standard deviation B 10% 5% M 16% 10% Q 14% 9% D 12% 8%

Given the following variance-covariance matrix for three securities, as well as the percentage of the portfolio for each security, calculate the portfolio's standard deviation. SecurityA 459 -211 112...

Given the following variance-covariance matrix and expected returns vector (for assets X and Y, respectively) for a two-asset world: (a) What is the expected return of a zero-beta portfolio, given...

14. Given the following expected return vector and variance-covariance matrix for three assets: and given the fact that Pie Traynor's risky portfolio is split 50-50 between the two risky assets: a....

Given the following expected return vector and covariance matrix for three assets, Expectedreturn=10.17.85.0CovarianceMatrix=21060060900000 and given the fact that your risky portfolio is split 5050...

Given the following expected return vector and variance-covariance ma- trix for three assets: 10.1 210 60 0 7.8 and T = 60 90 0 5.0 0 0 0 and given the fact that Pie Traynor's risky portfolio is...

5. Given the following expected return vector and variance-covariance ma- trix for three assets: 10.1 210 60 U ,u = 7.8 and I' = 60 90 U , 5.0 U U U and given the fact that Pie Traynor's risky...

Suppose you are given the mean return vector and variance-covariance matrix for 20 risky assets as well as the risk free rate rf. Assume that all the CAPM assumptions are satisfied and you are...

Information for Questions 2-7 Assume the following for questions 2 through 7 below. Suppose that the risk-free rate rf is 1%. In addition, there are three risky assets: Asset 1, Asset 2, and Asset 3....

You have $20,000. After the "success" of the sequel of the "Hunger Games", you want to know if Lions Gate Entertainment Corp. (NYSE:LGE) is a good buy. The firm's total risk is 19%, its systematic...

Why is an independent audit committee important to a company?

Prove that if A is similar to B and B is similar to C, then A is similar to C.

Hudson Corporation will pay a dividend of $5.20 per share next year. The company pledges to increase its dividend by 7.60 percent per year indefinitely. If you require a return of 14.70 percent on...

Consider a single-server nonpreemptive priority queue, with exponential service and Poisson arrivals. There are 4 customer classes, with arrival rates lamda1 = 4, 2 = 3, 3 = 5, 4 = 2 per hour and...

A stock is currently priced at $53.87 and the futures on the stock that expire in six months have a price of $55.94. The risk-free rate is 7 percent, and the stock is not expected to pay a dividend....

Joan Tam, CFA, believes she has identified an arbitrage opportunity as indicated by the information given below: Spot price for commodity: ............... $120 Futures price for commodity expiring in...

Donna Doni, CFA, wants to explore inefficiencies in the futures market. The TOBEC stock index has a spot value of 185 now. TOBEC futures are settled in cash and underlying contract values are...

Curry Construction's CFO has collected the following market value information. She has assigned you the task of calculating their WACCs. The cost of common equity is 16%. They have 2.5 million share...

Narda Corporation agreed to sell all of its capital stock to Effie Corporation for three monthly payments of $200,000. After Effie made the first required payment, it ceased making other payments....

Hybrid cars are touted as a "green" alternative; however, the financial aspects of hybrid ownership are not as clear. Consider the 2014 Edsel 550h, which had a list price of $5, 900 (including tax...