You invest in a portfolio of two stocks. The variance-covariance matrix of the two stocks is...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
You invest in a portfolio of two stocks. The variance-covariance matrix of the two stocks is given by : Stock A Stock B 0.05 0.15 Stock A 0.2 Stock B 0.05 The expected return of the two stocks are 0.1 and 0.08, respectively. Riskfree interest rate is 3%. a) If you invest 200 $ in Stock A, 300 $ in Stock B, and 100 in risk free asset (i.e. cash). Compute the volatility of your total portfolio (with both stocks and riskfree asset). b) What is the composition of the minimum variance stock portfolio? What is its expected return? c) What is the composition of the tangent portfolio? d) If Jack invests in a portfolio composed of cash and the tangent portfolio, and he estimates that the volatility of this portfolio is 0.16. What is the expected return of this portfolio? e) What is the Sharpe ratio of the above portfolio? What is the percentage of cash that Jack holds in the above portfolio? You invest in a portfolio of two stocks. The variance-covariance matrix of the two stocks is given by : Stock A Stock B 0.05 0.15 Stock A 0.2 Stock B 0.05 The expected return of the two stocks are 0.1 and 0.08, respectively. Riskfree interest rate is 3%. a) If you invest 200 $ in Stock A, 300 $ in Stock B, and 100 in risk free asset (i.e. cash). Compute the volatility of your total portfolio (with both stocks and riskfree asset). b) What is the composition of the minimum variance stock portfolio? What is its expected return? c) What is the composition of the tangent portfolio? d) If Jack invests in a portfolio composed of cash and the tangent portfolio, and he estimates that the volatility of this portfolio is 0.16. What is the expected return of this portfolio? e) What is the Sharpe ratio of the above portfolio? What is the percentage of cash that Jack holds in the above portfolio? You invest in a portfolio of two stocks. The variance-covariance matrix of the two stocks is given by : Stock A Stock B 0.05 0.15 Stock A 0.2 Stock B 0.05 The expected return of the two stocks are 0.1 and 0.08, respectively. Riskfree interest rate is 3%. a) If you invest 200 $ in Stock A, 300 $ in Stock B, and 100 in risk free asset (i.e. cash). Compute the volatility of your total portfolio (with both stocks and riskfree asset). b) What is the composition of the minimum variance stock portfolio? What is its expected return? c) What is the composition of the tangent portfolio? d) If Jack invests in a portfolio composed of cash and the tangent portfolio, and he estimates that the volatility of this portfolio is 0.16. What is the expected return of this portfolio? e) What is the Sharpe ratio of the above portfolio? What is the percentage of cash that Jack holds in the above portfolio? You invest in a portfolio of two stocks. The variance-covariance matrix of the two stocks is given by : Stock A Stock B 0.05 0.15 Stock A 0.2 Stock B 0.05 The expected return of the two stocks are 0.1 and 0.08, respectively. Riskfree interest rate is 3%. a) If you invest 200 $ in Stock A, 300 $ in Stock B, and 100 in risk free asset (i.e. cash). Compute the volatility of your total portfolio (with both stocks and riskfree asset). b) What is the composition of the minimum variance stock portfolio? What is its expected return? c) What is the composition of the tangent portfolio? d) If Jack invests in a portfolio composed of cash and the tangent portfolio, and he estimates that the volatility of this portfolio is 0.16. What is the expected return of this portfolio? e) What is the Sharpe ratio of the above portfolio? What is the percentage of cash that Jack holds in the above portfolio?
Expert Answer:
Answer rating: 100% (QA)
a To compute the volatility of the total portfolio we need to calculate the variance of the portfoli... View the full answer
Related Book For
Financial management theory and practice
ISBN: 978-1439078099
13th edition
Authors: Eugene F. Brigham and Michael C. Ehrhardt
Posted Date:
Students also viewed these finance questions
-
Consider the following MATLAB code snippet for implementing Newton's method: while( norm(f(k)) > tol & k < maxk) d = feval(dfdx,x(k)); k = k + 1; x(k) = x(k-1) - f(k-1) / d; f(k) = feval(fnon,x(k));...
-
Your client's current portfolio is fully invested in a country index fund C with an expected return of rc=5% and a volatility of c=15%. The (global) market portfolio has an expected return of 8% and...
-
A firm has estimated its weighted average cost of capital to be 9% based on the fact that its after cost of debt financing is 7% and its cost of equity is 12%. What are the firm's capital structure...
-
If a large chilled water plant has 6 chillers and 5 of them are operating at 1 0 0 % , when the operator starts the 6 th chiller, to what percent do the first 5 chillers unload? What formula do you...
-
The radius of a typical human eardrum is about 4.0 mm. Find the energy per second received by an eardrum when it listens to sound that is (a) At the threshold of hearing and (b) At the threshold of...
-
Reread the Management focus feature on Unocal and answer the following questions: a) Was it ethical for Unocal to enter into a partnership with a brutal military dictatorship for financial gain? b)...
-
A simple random sample of 75 people are given a new drug that is designed to relieve pain. After taking this drug for a month, they switch to a standard drug. The question of interest is whether the...
-
Selected transactions completed by ATV Discount Corporation during the current fiscal year are as follows: Jan. 5. Split the common stock 4 for 1 and reduced the par from $20 to $5 per share. After...
-
TAX RESEARCH MEMO #2 CASE INFORMATION-AC312 You previously provided tax advice to Chandler and Monica Bing, owners of Bing Bakery, Inc. (Bing), related to their newly created corporation, Bing...
-
The Chartered Financial Analyst (CFA) designation is the de facto professional certification for the financial industry. Employers encourage their prospective employees to complete the CFA exam....
-
Which of the following is a drawback of Porter's five forces model? Group of answer choices a. The model describes competition narrowly as a firm's closest competitors. b. Managers cannot determine...
-
What role does integrity play in fostering authentic leadership, and how can leaders exemplify this trait to inspire others and cultivate a trustworthy organizational environment ?
-
The Smelting Department of Sunland Company has the following production data for November. Beginning work in process 1,880 units that are 100% complete as to materials and 20% complete as to...
-
The following items are relevant to the preparation of a statement of cash flows for Pier Imports Inc. 1. Comparative balance sheets show a decrease of $10,800 in accrued utilities payable for the...
-
Apex Fitness Club uses straight-line depreciation for a machine costing $24,350, with an estimated four-year life and a $2,500 salvage value. At the beginning of the third year, Apex determines that...
-
How do organizations ensure that their commitment to integrity extends beyond compliance to create a deeply rooted ethical culture that drives positive behaviors ?
-
Gary borrows $50,000 from the bank and he plans to make quarterly repayments of $2,500 starting one year after the borrowing date. The interest rate is 4% p.a. compounded quarterly. Calculate the...
-
Discuss whether responsible human resources management should apply different standards for the home company and suppliers, for developed countries and developing countries, and for large companies...
-
Suppose a company will issue new 20-year debt with a par value of $1,000 and a coupon rate of 9%, paid annually. The tax rate is 40%. If the flotation cost is 2% of the issue proceeds, then what is...
-
Suppose you are given the following information. The beta of company i, bi, is 1.1, the risk-free rate, rRF, is 7 percent, and the expected market premium, rM - rRF, is 6.5 percent. (Assume that ai =...
-
Shapland Inc. has fixed operating costs of $500,000 and variable costs of $50 per unit. If it sells the product for $75 per unit, what is the break-even quantity?
-
In Exercises 3338, compute the mean and standard deviation of the random variable with the given discrete probability distribution. x P(x) -3 0.10 0 0.17 1 0.56 3 0.17
-
According to a report of the Nielsen Company, 76% of Internet searches used the Google search engine. Assume that a sample of 25 searches is studied. a. What is the probability that exactly 20 of...
-
A study conducted by the Pew Research Center reported that 58% of cell phone owners used their phones inside a store for guidance on purchasing decisions. A sample of 15 cell phone owners is studied....
Study smarter with the SolutionInn App