Start with the partial model in the file Ch3 P07 Build a Model.xls from the textbook's Web

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Start with the partial model in the file Ch3 P07 Build a Model.xls from the textbook's Web site. Following is information for the required returns and standard deviations of returns for A, B, and C:

Start with the partial model in the file Ch3 P07


The correlation coefficients for each pair are shown below in a matrix, with each cell in the matrix giving the correlation between the stock in that row and column. For example, ρAB = 0.1571 is in the row for A and the column for B. Notice that the diagonal values are equal to 1 because a variable is always perfectly correlated with itself.

Start with the partial model in the file Ch3 P07

a. Suppose a portfolio has 30% invested in A, 50% in B, and 20% in C. What are the expected return and standard deviation of the portfolio?
b.
The partial model lists six different combinations of portfolio weights. For each combination of weights, find the required return and standard deviation.
c. The partial model provides a scatter diagram showing the required returns and standard deviations already calculated. This provides a visual indicator of the feasible set. If you seek a return of 10.5%, then what is the smallest standard deviation that you must accept?

Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these...
Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...
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Intermediate Financial Management

ISBN: 978-1285850030

12th edition

Authors: Eugene F. Brigham, Phillip R. Daves

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