Question: Consider the following two stocks and T-Bill: Security Expected return Price Per Share rAB A 12% 30% $100 0.8 B 9% 20% $75 T-Bill 2%

Consider the following two stocks and T-Bill:

Security	Expected return		Price Per Share	rAB
A	12%	30%	$100	0.8
B	9%	20%	$75
T-Bill	2%	0%

a. Suppose you buy 50 shares of stock A and 50 shares of stock B. What is the expected return of this portfolio and what is its standard deviation?

(Hint first calculate what fraction of your investment in A and in B).

b. Suppose that instead of buying 50 shares of stock A and 50 shares of stock B you decided to buy only 25 shares of stock A, 25 shares of stock B,

and with the rest of the money buy Treasury bills. What is the expected return of this portfolio and what is its standard deviation.

(Hint: use the result in (a) to calculate the standard deviation of a portfolio composed of half (A+B) and half in T-bill). Also, the risk of risk free rate is 0.

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

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

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

When author Shere Hite wrote Woman and Love: A Cultural Revolution in Progress, she based conclusions about the general population of all women on 4,500 replies that she received after mailing...

show work in excel 1. Consider the following two stocks and T-Bill: Security E(R) o Price Per Share 0.8 12% 9% 2% 30% 20% 0% S100 $75 T-Bill a. Suppose you buy 50 shares of Stock A and 50 shares of...

Please show your work in Excel 1. Consider the following two stocks and T-Bill: Security E(R) o Price Per Share Pla S100 0.8 20% $75 T-Bill 0% a. Suppose you buy 50 shares of Stock A and 50 shares of...

Please show your work in Excel 1. Consider the following two stocks and T-Bill: Security E(R) o Price Per Share Pun 12% S100 9% $75 T-Bill 09 Suppose you buy 50 shares of Stock A and 50 shares of...

Consider the following two stocks and T-Bill: Security Expected return 6 Price Per Share rAB A 12% 30% $100 0.8 B 9% 20% $75 T-Bill 2% 0% 3. Suppose you buy 50 shares of stock A and 50 shares of...

. Consider the following two stocks and T-Bill: Security Expected return 6 Price Per Share rAB A 12% 30% $100 0.8 B 9% 20% $75 T-Bill 2% 0% 3. Suppose you buy 50 shares of stock A and 50 shares of...

Consider the following two stocks and T-Bill: Expected Price Per Security return Share PAB A 12% 30% $100 0.8 9% 20% $75 T-Bill 2% 0% a. Suppose you buy 50 shares of stock A and 50 shares of stock B....

E4 v IX fx 0.8 A B C D E F G H J K L M N O P 1 Consider the following two stocks and T-Bill: 2 Expected Price Per PAB Security return Share (Correlation) 4 A 12% 30% $100 0.8 5 B 9% 20% $75 T-Bill 2%...

Consider the following two stocks and T-Bill: Security A B T-Bill a. Expected return 12% 9% 2% O Price Per Share 30% $100 20% $75 0% PAB (Correlation) 0.8 Suppose you buy 50 shares of stock A and 50...

Please show you work in Excel 1. Consider the following two stocks and T-Bill: Security E(R) Price Per Share Pa 30% $100 9% 20% $75 T-Bill 2% 0% Suppose you buy 50 shares of Stock A and 50 shares of...

Please show your work in Excel 1. Consider the following two stocks and T-Bill: Security E(R) Price Per Share PAN $100 S75 a. Suppose you buy 50 shares of Stock A and 50 shares of Stock B. What is...

I love walking, and it helps me feel good in my body and relieve stress. Every day, I like to walk at least one hour, but not more than 4 hours. Write an inequality representing the possible number...

1. Jack James is completing the audit of the purchases payables payments cycle. Which one of the following procedures that Jack is performing would test payables for completeness? a) Select a sample...

Which of the following is reported as an investing activity in the statement of cash flows? Multiple Choice The sale of machinery The receipt of dividend revenue The payment of interest on bonds The...

White Company has two departments, Cutting and Finishing. The company uses a job-order costing system and computes a predetermined overhead rate in each department. The Cutting Department bases its...