You observe returns on stocks A and B on the following five dates: Returns Stock A...
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You observe returns on stocks A and B on the following five dates: Returns Stock A 3% 2% 1% 0% -1% Date 1 2 3 4 5 Stock B 5% 3% 4% -2% 0% (a) What is the standard deviation of the individual stock returns? What is the covariance? What is the correlation? (You may use Excel commands to answer these questions and write down your answers instead of calculating the answers by hand.) (2 points) (b) You form a portfolio that is 25% invested in stock A and 75% invested in stock B What is the mean return and the return standard deviation of your portfolio? (4 points) (c) Suppose further that the risk free rate is 0.30%. What is the Sharpe Ratio of the optimal portfolio? Describe the portfolio weights of the optimal portfolio. (6 points) You observe returns on stocks A and B on the following five dates: Returns Stock A 3% 2% 1% 0% -1% Date 1 2 3 4 5 Stock B 5% 3% 4% -2% 0% (a) What is the standard deviation of the individual stock returns? What is the covariance? What is the correlation? (You may use Excel commands to answer these questions and write down your answers instead of calculating the answers by hand.) (2 points) (b) You form a portfolio that is 25% invested in stock A and 75% invested in stock B What is the mean return and the return standard deviation of your portfolio? (4 points) (c) Suppose further that the risk free rate is 0.30%. What is the Sharpe Ratio of the optimal portfolio? Describe the portfolio weights of the optimal portfolio. (6 points)
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Related Book For
Corporate Finance Core Principles and Applications
ISBN: 978-0077905200
3rd edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford
Posted Date:
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