Consider a portfolio, P. invested in Stocks 1 and 2 with the following characteristics: w:...

 

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Consider a portfolio, P. invested in Stocks 1 and 2 with the following characteristics: • w: Weight in Stock 1 • Stock 1: E(r1) = 12 %, and o1 = 12% • Stock 2: E (r2) = 7 %, and o2 = 7 % - Corr(r1, r2) = P Suppose p = 0.2. For portfolio P with w =0.1, what is the variance of the portfolio? (Use %2 as a unit. Answer to the second decimal place, e.g. 58.00.) %3D Suppose P =-0.3. What is the expected return of the minimum variance portfolio? (Use % as a unit. Answer to the second decimal place, e.g. 58.00.) Suppose that a risk-free rate is 3% and p = 0. What is the risk premium of the optimal risky portfolio? (Use % as a unit. Answer to the second decimal place, e.g. 58.00.) Suppose that a risk-free rate is 3% and p = 0. Also, suppose an investor constructs the equally weighted portfolio, E, consisting of Stocks 1 and 2. Suppose further the investor has mean-variance utility U = E(r) – 0.5Ao? with A=5. What is the weight in E, if the investor constructs the optimal complete portfolio consisting of the risk-free asset and E. ( Answer to the second decimal place, e.g. 58.00.) Consider a portfolio, P. invested in Stocks 1 and 2 with the following characteristics: • w: Weight in Stock 1 • Stock 1: E(r1) = 12 %, and o1 = 12% • Stock 2: E (r2) = 7 %, and o2 = 7 % - Corr(r1, r2) = P Suppose p = 0.2. For portfolio P with w =0.1, what is the variance of the portfolio? (Use %2 as a unit. Answer to the second decimal place, e.g. 58.00.) %3D Suppose P =-0.3. What is the expected return of the minimum variance portfolio? (Use % as a unit. Answer to the second decimal place, e.g. 58.00.) Suppose that a risk-free rate is 3% and p = 0. What is the risk premium of the optimal risky portfolio? (Use % as a unit. Answer to the second decimal place, e.g. 58.00.) Suppose that a risk-free rate is 3% and p = 0. Also, suppose an investor constructs the equally weighted portfolio, E, consisting of Stocks 1 and 2. Suppose further the investor has mean-variance utility U = E(r) – 0.5Ao? with A=5. What is the weight in E, if the investor constructs the optimal complete portfolio consisting of the risk-free asset and E. ( Answer to the second decimal place, e.g. 58.00.)

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