Question: a. Consider two stocks, Stock D, with an expected return of 14 percent and a standard deviation of 26 percent, and Stock I, an international

a. Consider two stocks, Stock D, with an expected return of 14 percent and a standard deviation of 26 percent, and Stock I, an international company, with an expected return of 7 percent and a standard deviation of 17 percent. The correlation between the two stocks is .15. What is the weight of each stock in the minimum variance portfolio? (Do not round intermediate calculations. Round your answers to 4 decimal places.)

b. Consider two stocks, Stock D, with an expected return of 18 percent and a standard deviation of 33 percent, and Stock I, an international company, with an expected return of 6 percent and a standard deviation of 21 percent. The correlation between the two stocks is .19. What is the weight of each stock in the minimum variance portfolio? (Do not round intermediate calculations. Round your answers to 4 decimal places.)

c. A stock has an expected return of 12.7 percent, its beta is 1.80, and the risk-free rate is 3.2 percent. What must the expected return on the market be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

d. A portfolio has a beta of 1.30 and an actual return of 15.5%. The risk-free rate is 3.5% and the market risk premium is 8.5%. What is the value of Jensen's alpha?

e. You own a stock portfolio invested 20 percent in Stock Q, 18 percent in Stock R, 5 percent in Stock S, and 57 percent in Stock T. The betas for these four stocks are 1.2, .4, 1.3, and .8, respectively. What is the portfolio beta? (Do not round intermediate calculations. Round your answer to 3 decimal places.)

f. A portfolio has a Jensen's alpha of .93%, a beta of 1.45, and a CAPM expected return of 6.9%. The risk-free rate is 2.5%. What is the actual return of the portfolio?

g. Which one of the following correctly states the VaR for a 3-year period with a 2.5% probability?

Multiple Choice

Prob[R_p,_T E(R_p) 3 1.960 _p 3]

Prob[R_p,_T E(R_p) 3 1.645 _p 3]

Prob[R_p,_T E(R_p) 3 1.960 _p 3]

h. A portfolio has an expected return of 13.8%, a beta of 1.14, and a standard deviation of 12.7%. The U.S. Treasury bill rate is 3.8%. What is the Treynor ratio?

i. Refer to the table below:

3 Doors, Inc. Down Co.Expected return, E(R)11% 12%Standard deviation, 26 23 Correlation .21

Using the information provided on the two stocks in the table above, find the expected return and standard deviation on the minimum variance portfolio. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

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