Question: Suppose that there exist two securities (x and y) with an annual expected return equal to rx = 8% and ry 5% and a standard

  1. Suppose that there exist two securities (x and y) with an annual expected return equal to rx = 8% and ry 5% and a standard deviation of the returns equal to x = 10% and y = 7%, respectively. Moreover, the correlation coefficient between the returns of these securities is = -0.8.What is the return and the risk of a portfolio consisting of these two securities with the minimum variance and what is the role of the coefficient of correlation in the determination of the portfolio risk-return profile?
  2. Suppose that we evaluate two equity portfolios that consist of securities of the same stock exchange during a bearish period, i.e. the market portfolio declines during this period. The first portfolio (portfolio A) consists of 50 defensive securities while the second (porfolio B) consists of 5 aggressive securities. Which portfolio would be most likely to experience greater loses (in relative terms) due to the decline of the market portfolio?

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!

Q:

MAKE SURE ALL FORMULAS ARE CORRECTLY ENTERED MAKE SURE ALL FORMULAS ARE CORRECTLY ENTERED Jay Corporation has provided data from a two-year period to aid in planning. The Controller has asked you to...

Q:

Suppose that there exist two securities ( X and Y ) with an annual expected return equal to rx = 8 % and ry = 5 % and a standard deviation equal to \ sigma x = 9 % and \ sigma y = 6 % , respectively....

Q:

Suppose that there exist two securities (x and y) with an annual expected return equal to rx = 8% and ry = 5% and a standard deviation of the returns equal to ox = 10% and ay = 7%, respectively....

Q:

Suppose that there exist two securities (X and Y) with an annual expected return equal to x = 8% and ry = 5% and a standard deviation equal to Ox = 9% and Oy= 6%, respectively. The correlation...

Q:

Suppose that there exist two securities (X and Y) with an annual expected return equal to rx = 8% and ry = 5% and a standard deviation equal to x = 9% and y= 6%, respectively. The correlation...

Q:

The E.N.D. partnership has the following capital balances as of the end of the current year: Pineda Adams Fergie Gomez Total capital $ 190,000 170,000 160,000 150,000 $ 670,000 Answer each of the...

Q:

Question 2 Suppose that there exist two securities (A and B) with annual expected returns equal to rA = 3% and rp = 5% and standard deviations equal to 0A = 7% and Og = 10% respectively. The...

Q:

1. You have calculated the following rates of return on stocks X and Y over the last eight periods: Period Stock X Stock Y 1 18% 18% 2 18 18 3 6 30 4 18 18 5 18 18 6 30 6 7 18 18 8 18 18 You are...

Q:

9:02 - LTE X FIN 470 - Assignment #16.pdf ... FIN 470 - Assignment 16 1. A manager decides not to lend to any firm in sectors that generate losses in excess of 5 percent of capital a) If the average...

Q:

4a. Assume that the riskfree rate is 8 percent and that you can invest funds in the market portfolio which has an expected return of 18 percent and a standard deviation of return of 20 percent. If...

Q:

4a. Assume that the riskfree rate is 8 percent and that you can invest funds in the market portfolio which has an expected return of 18 percent and a standard deviation of return of 20 percent. If...

Q:

The members of a truss are connected to the gusset plate. (Figure 1) Figure 1 of 1 8 kN- 5 kN

Q:

Find the volume of this cone. Use 3 for TT. rh V = 3 V = (1.5)[?] 3 8in Hint: Plug the value of h into the formula. 3in Hint: The height of the cone is shown directly in the diagram. Enter

Q:

3 . According to the principles of inventory valuation, at what value should inventory be recorded? The higher of cost or net realizable value The original purchase price The lower of cost or net...

Q:

The Pew Internet and American Life Project reports that American adults send a mean of 20 text messages per day. A random sample of 60 American adults showed a mean of 22 text messages per day....

Q:

A 52-year-old client asks an accountant how to plan for his future retirement at age 62. He expects income from Social Security in the amount of $21,600 per year and a retirement pension of $40,500...

Q:

Based on the following information provided about a company's operations, calculate its cost of goods purchased and its cash paid for merchandise. Cost of goods sold- 413,000 Merchandise inventory,...

Q:

Find all Pythagorean triples a, b, c such that a

Q:

Create a 200 word summary on the Juvenile Justice System than and today. Describe The Juvenile system and provide a generalizable definition. Highlight the issues in the Juvenile system and why this...

Q:

Name one international financial institution, and describe how it assists in the aftermath of an international disaster.

Q:

Visit the UN Consolidated Appeals Process (CAP) website at http://ochaonline.un.org/humanitarianappeal/ . Navigate into the appropriate hyperlinks. Make a list of each emergency, and determine what...

Q:

What is the goal of emergency management in regards to the terrorism threat?