Question

1. An investor owns the following portfolio today Stock # of Shares Market value Expected annual return IBM 100 $141.23 7% STO $16.60 13% 220 $33.48 8% What is the investor's expected rate of return after one year? 2. IMF manages a $30 billion portfolio with an expected return equal to 15% and standard deviation equal to 22%. The risk-free rate equals 5%. One of the clients desires a portfolio standard deviation equal to 15%. Using the capital asset line (CAL), what is the highest expected return for the client? 3. Using the information in the following figure, what are the expected return and standard deviation of the two-asset portfolio? Characteristics for a Two-Stock Portfolio IBM Apple Amount invested Expected return Standard deviation Correlation $40,000 11% 15% 0.3 $60,000 25% 20%

Please answer all 3, thank you

Answer 1

Part A}

Stock	No of shares	Market Price	Market value	% in total Investment	Cumulative%
IBM	100	141.23	14,123	58.09%	58.09%
STO	170	16.6	2,822	11.60%	69.69%
T	220	33.48	7,365.60	30.31%	100%
Total			24,310.60

ER of Portfolio = 58.09*(7%)+11.60*(13%)+30.31(8%)

= 8%

Part B) Formula for expected rate of Return through CAL Method is

ER= RF+B(RM-RF)

Where RF is Risk free rate of return

B is standard deviation of security/ SD of portfolio

ER= 5+15/22(15-5)

ER=11.81%

Return = 30Billlion$ *11.81%=3.543$ Billion

Part C

Expected return of Portfolio=

Total Investment = 60,000+40,000 = 1,00,000$

(40,000/1,00,000)*11 + (60,000/1,00,000)*25

=4.4%+15%= 19.4%

Standard Deviation of portfolio

= .4(11-19.4)^2+.6(25-19.4)^2

=28.224+18.816

=47.04_x2

_=6.85

_SD=6.85