1. Suppose there is a negative correlation (-0.8) between the two risky assets (LARGE stocks and...
1. Suppose there is a negative correlation (-0.8) between the two risky assets (LARGE stocks and SMALL stocks). Will the variance of the minimum-variance portfolio increase, stay the same, or decrease when we switch from a correlation of 0.4 to a negative correlation of -0.8?
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1. Suppose there is a negative correlation (-0.8) between the
two risky assets (LARGE stocks and...
How to construct a risk-free portfolio using two assets? Find two assets with correlation between them...
How to construct a risk-free portfolio using two assets? Find two assets with correlation between them equal to -1 Find two assets with correlation between them equal to 1 Find two assets with correlation between them bigger than 0 but smaller than 1 Find two assets with correlation between them bigger than -1 but smaller than 0 Stock A and B are identical in terms of their expected cash flows. Investors like stock A more than stock B today for...
2. Consider two risky assets (A and B), with the following characteristics: E(TA) = 6% and...
2. Consider two risky assets (A and B), with the following characteristics: E(TA) = 6% and OA = 10% , E(TB) = 8% and B= 16%. 5 points) (a) Suppose that the correlation between A and B is 1. What is the minimum variance portfolio? (2 points) (b) Same question if the correlation is -1. Calculate the expected return on the minimum variance portfolio 3 points)
There are only two risky assets (stocks) A and B in the market. Asset A: Mean...
There are only two risky assets (stocks) A and B in the market. Asset A: Mean = 20% Standard Deviation = 10% Asset B: Mean = 10% Standard Deviation = 5% Returns on Assets have zero correlation. A.Assume that there is no risk-free asset. (i)Plot (sketch) the efficiency frontier (the investment opportunity set). (ii)What is the expected return and the standard deviation of the minimum-variance-portfolio? (iii)An investor would like to construct a portfolio that has a standard deviation of 8%....
An investor can design a risky portfolio based on two stocks, A and B. The standard...
An investor can design a risky portfolio based on two stocks, A and B. The standard deviation of return on stock A is 20% while the standard deviation on stock B is 5%. The correlation coefficient between the return on A and B is 0%. The standard deviation of return on the minimum variance portfolio is __________. A. 0% B. 4.15% C. 4.85% D. 5.00%
Question 1 gives you the information of the stocks and their correlation, which will be used...
Question 1 gives you the information of the stocks and their correlation, which will be used in many of the following questions. James, a portfolio manager, would like to form the following portfolio between Microsoft and Coca-Cola: Expected return (%) Standard Deviation (%) Weight Microsoft 28 42 0.4 Coca-Cola 12.5 21 0.6 The correlation between the two stocks is 0.5. What is the expected return of the portfolio? ______% Now, suppose the correlation between the two stocks...
An investor can design a risky portfolio based on two stocks, A and B. Stock A...
An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 45% and a standard deviation of return of 9%. Stock B has an expected return of 15% and a standard deviation of return of 2%.The correlation coefficient between the returns of A and B is 0.0025. The risk-free rate of return is 2%. The standard deviation of return on the minimum variance portfolio is _________.
We consider different risky portfolios consisting of two risky assets X and Y. Suppose the expected...
We consider different risky portfolios consisting of two risky assets X and Y. Suppose the expected return and standard deviation of the Minimum Variance Portfolio (MVP), M, are 9.05% and 1.04%. There are four other risky portfolios consisting of X and Y: A) Portfolio A: E(rA) = 8.25% and σA = 1.10%. B) Portfolio B: E(rB) = 9.20% and σB = 1.05%. C) Portfolio C: E(rC) = 8.70% and σC = 1.05%. D) Portfolio D: E(rD) = 8.53% and σD...
3. Two risky assets with returns ri, r2 and standard deviations 01, 02, and correlation p....
3. Two risky assets with returns ri, r2 and standard deviations 01, 02, and correlation p. Calculate the weights for the following two optimal portfolios. a. Minimum volatility (variance) portfolio minimizes the overall risk min o s.t. Wi+w2 = 1 b. Maximum Sharpe Ratio portfolio delivers the highest expected return of unit of risk may'p - ry ma Op s.t. Wi+w2 = 1
If there is no diversification benefit derived from combining two risky stocks into one portfolio, then the O A. return...
If there is no diversification benefit derived from combining two risky stocks into one portfolio, then the O A. returns on the two stocks must move perfectly in sync with one another. O B. returns on the two stocks must move perfectly opposite of one another. OC. stocks must have a zero correlation. O D. portfolio is equally weighted between the two stocks. O E. two stocks are completely unrelated to one another.
If there is no diversification benefit derived...
Problem 1: What is the variance of a portfolio with: w1 =0.2, w2 =0.8, σ12 =10,...
Problem 1: What is the variance of a portfolio with: w1 =0.2, w2
=0.8, σ12 =10, σ22 =20,
and σ12 =5.
Problem 2: a) If the stocks 1 and 2 have negative correlation
12 then their covariance σ12 is
also negative. Yes, no, uncertain. Explain. b) If stocks 1 and 2
are uncorrelated, i.e.
12=0 then their covariance is zero, Yes, no,
uncertain. Explain c) If stocks 1 and 2 have variance
σ2=16 each, could their covariance be equal to...
2. Consider two risky assets (A and B), with the following characteristics: E(TA) = 6% and OA = 10% , E(TB) = 8% and B= 16%. 5 points) (a) Suppose that the correlation between A and B is 1. What is the minimum variance portfolio? (2 points) (b) Same question if the correlation is -1. Calculate the expected return on the minimum variance portfolio 3 points)
3. Two risky assets with returns ri, r2 and standard deviations 01, 02, and correlation p. Calculate the weights for the following two optimal portfolios. a. Minimum volatility (variance) portfolio minimizes the overall risk min o s.t. Wi+w2 = 1 b. Maximum Sharpe Ratio portfolio delivers the highest expected return of unit of risk may'p - ry ma Op s.t. Wi+w2 = 1
If there is no diversification benefit derived from combining two risky stocks into one portfolio, then the O A. returns on the two stocks must move perfectly in sync with one another. O B. returns on the two stocks must move perfectly opposite of one another. OC. stocks must have a zero correlation. O D. portfolio is equally weighted between the two stocks. O E. two stocks are completely unrelated to one another.
If there is no diversification benefit derived...
Problem 1: What is the variance of a portfolio with: w1 =0.2, w2
=0.8, σ12 =10, σ22 =20,
and σ12 =5.
Problem 2: a) If the stocks 1 and 2 have negative correlation
12 then their covariance σ12 is
also negative. Yes, no, uncertain. Explain. b) If stocks 1 and 2
are uncorrelated, i.e.
12=0 then their covariance is zero, Yes, no,
uncertain. Explain c) If stocks 1 and 2 have variance
σ2=16 each, could their covariance be equal to...
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