Share A is a platinum mining house share, relatively risky with a variance of 0.28. It...
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Share A is a platinum mining house share, relatively risky with a variance of 0.28. It has a covariance of 0.016 with B, a financial share, which has a variance of 0.015. B has a covariance with C of 0.072, a commodities based unit trust with a standard deviation of 0.35. A and C have a correlation coefficient of 0.739. You propose the following portfolio: 2/5 in A, 25% in B, and 3/10 in C, with the remainder being invested in government securities at the risk free rate. Assume that the rate of return on the shares are as follows: A-16%, B-8 % , C = 15 %, Risk Free 5%. a) Calculate the risk and return of the overall portfolio? b) Calculate the covariance and correlation coefficient between the above risky portfolio and a portfolio with the following proportions: A=0.45, B=0.25, C=0.35 (This portfolio is funded by borrowing at the risk free rate). Share A is a platinum mining house share, relatively risky with a variance of 0.28. It has a covariance of 0.016 with B, a financial share, which has a variance of 0.015. B has a covariance with C of 0.072, a commodities based unit trust with a standard deviation of 0.35. A and C have a correlation coefficient of 0.739. You propose the following portfolio: 2/5 in A, 25% in B, and 3/10 in C, with the remainder being invested in government securities at the risk free rate. Assume that the rate of return on the shares are as follows: A-16%, B-8 % , C = 15 %, Risk Free 5%. a) Calculate the risk and return of the overall portfolio? b) Calculate the covariance and correlation coefficient between the above risky portfolio and a portfolio with the following proportions: A=0.45, B=0.25, C=0.35 (This portfolio is funded by borrowing at the risk free rate).
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Answer rating: 100% (QA)
SOLUTION To calculate the risk and return of the overall portfolio well use the given information about the individual assets and their weights in the portfolio a Risk and Return of the Overall Portfo... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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