Question: 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

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 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!

Acme Corporation has been operating profitably since its creation in 1998. At the beginning of 2022, Acme acquired a 70 percent ownership in Beta Company. At the acquisition date, Acme prepared the...

. 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 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...

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....

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 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: 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...

CHALLENGE 29. Dividend policy and the dividend discount model Consider the following two statements: "Dividend policy is irrelevant," and "Stock price is the present value of expected future divi-...

Hello, I need help with 2 problems in the spreadsheet provided below. The tabs are P8-2A, P8-4A. P8-2A Round all calculations to two decimal places (a) Compute the markup percentage and target...

Determine the force in each member of the truss shown. State whether each member is in tension or compression. 5.06 t414n 10s ft- 45 R -6t-

Add any unshared electrons to give each element an octet in its valence shell in the formulas below and indicate any formal charges. All of the hydrogen atoms that are attached to heteroatoms have...

Comment on General Mills 2 0 2 4 annual report and how the company is performing compared to 1 9 9 9 2 5 years later. What are the similarities? What are the differences? Is it better off in 2 0 2 4...

On August 1, 2020, Wholly Crappe Company paid an 18 Month insurance premium. On that date the following journal entry was made: Prepaid insurance ......................4,050 Cash...