You have information on several possible investments as laid out in the table below. A, B,...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
You have information on several possible investments as laid out in the table below. A, B, and C are individual risky securities. F is the risk-free asset. M is the market portfolio. All returns are annual returns. Investment A B C F M Expected Return 19.20% 21.90% 12.00% 3.00% 12.00% Standard Deviation 36% 35% 25% 0% 10% A 1.0000 B 0.7000 1.0000 Correlation Matrix C 0.6000 0.5000 1.0000 F 0.0000 0.0000 0.0000 1.0000 M 0.5 0.6 0.4 0.0 1.0 a. Using the correlation matrix, compute the covariance of asset A with the market and B with the market. (3 marks) b. Using the correlation matrix, compute the beta of asset C. (2 marks) Assume that you want to form a portfolio that consist of a long position of $18,000 in asset C and a short position of $6,000 in asset A. What is the expected return and risk of this portfolio? C. (6 marks) d. You have $100,000 to invest. You would like use a combination of M and F to obtain a standard deviation of 4% on your overall portfolio. How much (in dollars) do you invest in F if you choose the most efficient portfolio possible? What is the return of this portfolio? (6 marks) e. Which one of the portfolios (A with Mor B with M or C with M) are efficient? Explain. (3 marks) You have information on several possible investments as laid out in the table below. A, B, and C are individual risky securities. F is the risk-free asset. M is the market portfolio. All returns are annual returns. Investment A B C F M Expected Return 19.20% 21.90% 12.00% 3.00% 12.00% Standard Deviation 36% 35% 25% 0% 10% A 1.0000 B 0.7000 1.0000 Correlation Matrix C 0.6000 0.5000 1.0000 F 0.0000 0.0000 0.0000 1.0000 M 0.5 0.6 0.4 0.0 1.0 a. Using the correlation matrix, compute the covariance of asset A with the market and B with the market. (3 marks) b. Using the correlation matrix, compute the beta of asset C. (2 marks) Assume that you want to form a portfolio that consist of a long position of $18,000 in asset C and a short position of $6,000 in asset A. What is the expected return and risk of this portfolio? C. (6 marks) d. You have $100,000 to invest. You would like use a combination of M and F to obtain a standard deviation of 4% on your overall portfolio. How much (in dollars) do you invest in F if you choose the most efficient portfolio possible? What is the return of this portfolio? (6 marks) e. Which one of the portfolios (A with Mor B with M or C with M) are efficient? Explain. (3 marks)
Expert Answer:
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
Students also viewed these finance questions
-
For each of the following samples of paired ranks, sketch a scatter diagram, find the value of rs, and state whether there appears to be a correlation between x and y. a. b. c. x | 1 3 5 4 2 y 3 5 4...
-
Twenty-four students from universities in Connecticut were asked to name the five current members of the U.S. House of Representatives from Connecticut. The numbers of correct names supplied by the...
-
The following additional information is available for the Dr. Ivan and Irene Incisor family from Chapters 1-5. Ivan's grandfather died and left a portfolio of municipal bonds. In 2012, they pay Ivan...
-
Find the point in the first quadrant on the curve y = x + x 1 closest to the origin.
-
A 72.0-kg swimmer jumps into the old swimming hole from a diving board 3.25 m above the water. Use energy conservation to find his speed just he hits the water (a) If he just holds his nose and drops...
-
Albertson's Locksmith Corporation started operations on January 1, 2010. Albertson's estimates uncollectibles using the percentage-of-credit-sales method. The following information pertains to the...
-
Alpine Ski Shops Prepaid Rent balance is $4,500 on June 1. This prepaid rent rep resents six months rent. Journalize and post the adjusting entry on June 30 to record one months rent. Compute the...
-
B, a chemist, was employed by A, a manufacturer, to work on a secret process for As product under an exclusive three-year contract. A employed C, a salesperson, on a week-to-week basis. B and C...
-
Hirsch has been given 20 minutes at an upcoming meeting to pitch his idea for a process-improvement program to the rest of the Metropolis leadership team. What should he do before he gives the pitch?...
-
You work at DeliWine, a US wine retailer. DeliWine sources one of their best selling wines, JeanRose, from a Dutch wine distributor. The cost of placing an order is $ 513 and the annual holding cost...
-
Amy is a single and works part-time at a local company. During the year, she paid $3,800 in tuition and fees to enroll in classes at the local community college. This was her second year attending...
-
Briefly describe the Net Present Value, and the Internal Rate of Return methods to evaluate investment project, and explain the major difference between them.
-
Briefly explain why a succession plan is necessary.
-
What is the due diligence, and how can you utilize it when buying a business?
-
List and briefly explain the methods by which the data seasonality can be adjusted.
-
What is meant by the analysis of financial statements, and who would need it?
-
Using any method convert the equation, y=x^(2)+6x-7, from standard form to vertex form.
-
Repeat Exercise 16.6 using the t-test of the coefficient of correlation. Is this result identical to the one you produced in Exercise 16.6?
-
Clifford Johnson has a limited partnership investment and a rental condominium. Clifford actively manages the rental condominium. During 2012, his share of the loss from the limited partnership was...
-
Marty is a sales consultant. Marty incurs the following expenses related to entertainment of his clients in 2012: Dues to a country club......................................................$4,500...
-
John Fuji (age 37) moved from California to Washington in December 2011. He lives at 468 Cameo Street, Yakima, WA 98901. John's Social Security number is 571-78-5974 and he is single. His earnings...
-
There are two sections of an introductory statistics course. Section A has 25 students and section B has 30 students. All students took the same final exam. The mean score in section A was 82 and the...
-
Addison has been told that her average on six homework assignments in her history class is 85. She can find only five of the six assignments, which have scores of 91, 72, 96, 88, and 75. What is the...
-
A data set has a median of 17, and six of the numbers in the data set are less than 17. The data set contains a total of n numbers. a. If n is odd, and exactly one number in the data set is equal to...
Study smarter with the SolutionInn App