A. Statistics for stocks A and B are shown in the following table. Stocks Expected return...
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A. Statistics for stocks A and B are shown in the following table. Stocks Expected return A B Correlation (A, B) = 0.28 11.2% 5.9% Standard deviation 0.208 0.106 The risk-free rate for T-bills is 4% per year. Round your answers to three decimal places (e.g., 0.123 or 12.3%). a) Suppose that you only use stocks A and B to construct a portfolio P. Calculate the weights of stocks A and B in your portfolio P that gives the minimum variance portfolio. b) Find the weights of the tangency portfolio that consists of two risky stocks A and B c)Find the expected rate of return, standard deviation, and Sharpe ratio of the optimal portfolio constructed using stocks A and B. d) Suppose you require that your complete portfolio yield an expected return of 8% and be efficient on the best feasible CAL. What is the standard deviation of your portfolio? What is the proportion invested in the T-bills and each of the two risky stocks? e) Suppose that your preferences can be captured by the quadratic utility function: U = E[r]- Aσ² Also, assume that your risk aversion coefficient A is 4. Calculate the weights of optimal complete portfolio in terms of all available assets. Find the expected return and variance of the optimal complete portfolio. A. Statistics for stocks A and B are shown in the following table. Stocks Expected return A B Correlation (A, B) = 0.28 11.2% 5.9% Standard deviation 0.208 0.106 The risk-free rate for T-bills is 4% per year. Round your answers to three decimal places (e.g., 0.123 or 12.3%). a) Suppose that you only use stocks A and B to construct a portfolio P. Calculate the weights of stocks A and B in your portfolio P that gives the minimum variance portfolio. b) Find the weights of the tangency portfolio that consists of two risky stocks A and B c)Find the expected rate of return, standard deviation, and Sharpe ratio of the optimal portfolio constructed using stocks A and B. d) Suppose you require that your complete portfolio yield an expected return of 8% and be efficient on the best feasible CAL. What is the standard deviation of your portfolio? What is the proportion invested in the T-bills and each of the two risky stocks? e) Suppose that your preferences can be captured by the quadratic utility function: U = E[r]- Aσ² Also, assume that your risk aversion coefficient A is 4. Calculate the weights of optimal complete portfolio in terms of all available assets. Find the expected return and variance of the optimal complete portfolio.
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Answer rating: 100% (QA)
To calculate the weights of stocks A and B in the portfolio and other related quantities we can use the principles of portfolio theory and the Capital Asset Pricing Model CAPM Here are the calculation... View the full answer
Related Book For
Introduction To Statistical Investigations
ISBN: 9781118172148
1st Edition
Authors: Beth L.Chance, George W.Cobb, Allan J.Rossman Nathan Tintle, Todd Swanson Soma Roy
Posted Date:
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