You have combined two stocks, ABC and DEF, into an equally weighted portfolio (Stable) and it...
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You have combined two stocks, ABC and DEF, into an equally weighted portfolio (Stable) and it has a variance of 35%. The covariance between ABC and DEF is 25%. ABC is a resource stock and has a variance twice that of DEF. You have formed another portfolio (Growth) that has an expected return of 17% and a variance of 50%. The expected return on the market is 15% and the risk free rate is 7% Covariance (ABC,Market) = 22% and Covariance (DEF,Market) = 15.5% and the variance of the Market is 15%. Required: i. What is the variance of ABC? ii. What is the correlation of ABC with DEF? iii. Is your Stable portfolio efficient? Explain. (3 marks) (2 marks) (2 marks) You have combined two stocks, ABC and DEF, into an equally weighted portfolio (Stable) and it has a variance of 35%. The covariance between ABC and DEF is 25%. ABC is a resource stock and has a variance twice that of DEF. You have formed another portfolio (Growth) that has an expected return of 17% and a variance of 50%. The expected return on the market is 15% and the risk free rate is 7% Covariance (ABC,Market) = 22% and Covariance (DEF,Market) = 15.5% and the variance of the Market is 15%. Required: i. What is the variance of ABC? ii. What is the correlation of ABC with DEF? iii. Is your Stable portfolio efficient? Explain. (3 marks) (2 marks) (2 marks)
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i Variance of ABC Given Variance of the equally weighted portfolio Stable 35 Covariance between ABC and DEF 25 Variance of ABC is twice that of DEF We can use the formula for the variance of a portfol... View the full answer
Related Book For
Fundamentals Of Corporate Finance
ISBN: 9780135811603
5th Edition
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford
Posted Date:
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