You can only invest in two securities: A and X. The correlation between the returns of...
Fantastic news! We've Found the answer you've been seeking!
Question:
![](https://dsd5zvtm8ll6.cloudfront.net/questions/2024/04/660a508b95846_1711951994097.jpg)
Transcribed Image Text:
You can only invest in two securities: A and X. The correlation between the returns of A and X is 0.2. Expected returns and standard deviations are as follows: Security E[R] A X o(R) 20% 20% 15% 25% a) It seems that A dominates X in that it has a higher expected return and lower standard deviation. Would anyone ever invest in X? Why? b) What is the expected return and standard deviation of a portfolio that invests 60% in A and 40% in X? c) Suppose instead that you want your portfolio to have an expected return of 19.5%. What portfolio weights do you select now? What is the standard deviation of this portfolio? You can only invest in two securities: A and X. The correlation between the returns of A and X is 0.2. Expected returns and standard deviations are as follows: Security E[R] A X o(R) 20% 20% 15% 25% a) It seems that A dominates X in that it has a higher expected return and lower standard deviation. Would anyone ever invest in X? Why? b) What is the expected return and standard deviation of a portfolio that invests 60% in A and 40% in X? c) Suppose instead that you want your portfolio to have an expected return of 19.5%. What portfolio weights do you select now? What is the standard deviation of this portfolio?
Expert Answer:
Answer rating: 100% (QA)
a Yes some investors may still choose to invest in X despite its lower expected return and higher volatility compared to A The reason is that diversif... View the full answer
Related Book For
Principles of Corporate Finance
ISBN: 978-1260013900
13th edition
Authors: Richard Brealey, Stewart Myers, Franklin Allen
Posted Date:
Students also viewed these finance questions
-
13. What is a lower bound for the price of 3-month call option on a non- dividend-paying stock when the stock price is $50, the strike price is $45, and the 3-month risk-free interest rate is 8%?...
-
critically compare the following: Ciphertext Only Attack model (COA) and Chosen Plaintext Attack model (CPA) Classic Cryptanalytic attack and Implementation attack Your response should be no more...
-
Q1. You have identified a market opportunity for home media players that would cater for older members of the population. Many older people have difficulty in understanding the operating principles...
-
1. What is the present value (PV") of an offer of $15,000 two years from now if the Opportunity Cost of Capital (OCC) is $12% per annum? 2. What is the PV of an offer to receive $12,000 three years...
-
A 15.0-mL sample of an oxalic acid solution requires 25.2mL of 0.149 M NaOH for neutralization. Calculate the volume of a 0.122 M KMnO4 solution needed to react with a second 15.0-mL sample of the...
-
Quality control systems have been developed to remotely measure the diameter of wires using diffraction. A wire with a stated diameter of 170 mm blocks the beam of a 633 nm laser, producing a...
-
Managing diabetes People with diabetes measure their fasting plasma glucose (FPG; measured in units of milligrams per milliliter) after fasting for at least 8 hours. Another measurement, made at...
-
Flo Choi owns a small business and manages its accounting. Her company just finished a year in which a large amount of borrowed funds was invested in a new building addition as well as in equipment...
-
c. Prepaid Rent. On September 1 of the current year, the company prepaid $45,600 for two years of rent for facilities being occupied that day. The company debited Prepaid Rent and credited Cash for...
-
Tikkity Tock Clock Company sells three types of clocks. They purchase these clocks from manufacturers and sell them to retail stores. Tikkity Tock uses a perpetual inventory system, weighted average...
-
On January 1, 2019, Billips Corporation purchased equipment having a fair value of $72,054.94 by issuing a $90,000 note, payable in three $30,000 annual installments beginning December 31, 2019....
-
For this online discussion, we will explore the relevance of various management styles in the context of your respective organizations. Your task is to review different management styles and propose...
-
Is a t-Distribution Appropriate? A sample with size n = 10 has x = 508.5, and s = 21.5. The dotplot for this sample is given below. 0000 00 500 510 520 530 540 550 560 570 Indicate whether or not it...
-
Interpret the results. Write a statement to summarize your conclusion. Is a relationship present? Do we accept or reject the null hypothesis? Are the two variables related? Why or why not?
-
Case study information Australian Renewable Energy Hub Source: https://research.csiro.au/hyresource/australian-renewable-energy-hub/ April 20th, 2023 The Australian Renewable Energy Hub (AREH) will...
-
Listening is a crucial leadership skill that is essential for building effective relationships and solving problems. Write a paper that explores the importance of listening as a leadership skill,...
-
Waterway Boats paid a $380 cheque to a supplier for the balance due on an account payable. The transaction was erroneously recorded as a credit to Cash of $830 and a debit to Repairs Expense of $830....
-
In Exercises, find the equation of the tangent line at the given point on each curve. 2y 2 - x = 4; (16, 2)
-
True or false? a. If markets are efficient, shareholders should expect to receive only the risk-free interest rate on their investment. b. If markets are efficient, investment in the stock market is...
-
1. Calculate the NPV of the wildcat oil well, taking account of the probability of a dry hole, the shipping costs, the decline in production, and the forecasted increase in oil prices. How long does...
-
Northern Refineries does not avoid risk by selling oil futures. If prices stay above $2.40 a gallon, then it will actually have lost by selling oil futures at that price. Is this a fair comment?
-
What is the relationship between false positive rate and sensitivity?
-
What is the term used for the proportion of true positives in the medical literature? Why do we prefer to avoid this term in this book?
-
Construct a gains chart for the default CART model. Explain the relationship between this chart and the lift chart.
![Mobile App Logo](https://dsd5zvtm8ll6.cloudfront.net/includes/images/mobile/finalLogo.png)
Study smarter with the SolutionInn App