Finance
Consider a 12 months potential investment in two securities. Security 1 has an expected return of 6% per annum and that of security 2 is 8% per annum. The standard deviation of the returns for security 1 9% and for security 2 it is 10%. The risk-free rate is 6.5% and the correlation between the two securities is 0.4. Required: A. Which combination of the two securities will result in expected returns that exceed the risk free rate? [6 Marks] B. What is the portfolio volatility for each of the combinations identified in (a) above? [6 Marks] C. Which of all the possible portfolios lie on the efficient frontier? [8 Marks] [TOTAL: 20 MARKS]
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98) Which of the following statements is FALSE A) The volatility declines as the number of stocks in a portfolio grows. B) An equally weighted portfolio is a porfolio in which the same amount is...
98) Which of the following statements is FALSE A) The volatility declines as the number of stocks in a portfolio grows. B) An equally weighted portfolio is a porfolio in which the same amount is invested in eadh stock C) As the number of stocks in a portfolio grows large, the variance of the portfolio is determined primarily by the average covariance among the stocks D) When combining stocks into a portfolio that puts positive weight on each stock, unless...
letter b please You have estimated the following probability distribution of returns for two stocks: Stock...
letter b please
You have estimated the following probability distribution of returns for two stocks: Stock N Stock O Probability 0.20 0.30 Return 8% Probability 0.20 0.30 0.30 Return 26% 12 0.30 0.20 -4 0.20 -4 Calculate the expected rate of return and standard deviation for cach stock If the correlation between the returns on the two stocks is -0.40, calculate the portfolio returm and the standard deviation for portfolios containing 100%, 75 % , 50 % , 25 %...
29) Which of the following statements is FALSE? A) The Sharpe ratio of the portfolio tells us how much our expected...
29) Which of the following statements is FALSE? A) The Sharpe ratio of the portfolio tells us how much our expected retun will increase for a given increase in volatility B) We should continue to trade securities until the expected r return of each security equals its required return. Q) The required return is the expected return that is necessary to compensate for the risk that an investment will contribute to the portfolio. D) If security is required retun exceeds...
Question 1 1 pts The combination of a risk-free asset and a portfolio on the efficient...
Question 1 1 pts The combination of a risk-free asset and a portfolio on the efficient frontier leads to the formation of a: security market line, which shows that investors will only prefer portfolios that lie on the top half of the minimum variance frontier capital market line, which shows that investors will invest in a combination of the riskless asset and the tangency portfolio capital market line, which shows that investors will invest all their money into the tangency...
please work all parts. 2. Stock A has expected return of 14% and volatility 30%. Stock...
please work all parts.
2. Stock A has expected return of 14% and volatility 30%. Stock B has expected return of 8% and volatility 19%. The correlation between two stocks is -0.2. The risk free interest rate is 4% (a) Find the expected returns, volatilities, and Sharpe ratios of portfolios that maintain 100.0% investment in Stock A and 100(1-x)% in Stock B, where x is given in the following table. Volatility Expected return Sharpe ratio 0.8 0.9 1.0 (b) How...
(2*5) Consider a market with many risky assets and a risk-free security. Asset’s returns are not...
(2*5) Consider a market with many risky assets and a risk-free security. Asset’s returns are not perfectly correlated. All the CAPM assumptions hold and the market is in equilibrium. The risk-free rate is 5%, the expected return on the market is 15%. Mr. T and Mrs. R are two investors with mean-variance utility functions and different risk-aversion coefficients. They both invest into efficient portfolios composed of the market portfolio and the risk-free security. Mr. T’s portfolio has an expected return...
4. Investor equilibrium The following graph shows the set of portfolio opportunities for a multiasset case....
4. Investor equilibrium The following graph shows the set of portfolio opportunities for a multiasset case. The point RF corresponds to a risk-free asset, the red curve BME is the efficient frontier, the shaded area under the efficient frontier represents the feasible set of portfolios of risky assets, and the yellow curves II and I2 are indifference curves for a particular investor. EXPECTED RATE OF RETURN (Percent) 10 RISK (Portfolio's standard deviation) The points on the line PRF MZ represent:...
3 Question 3 In a market are listed two risky assets whose returns are described by the following parameters...
3 Question 3 In a market are listed two risky assets whose returns are described by the following parameters HA=0.01. MB = 0.07, 01 = 0.2 and op = 0.12. The correlation among the securities is constant and equal to p=0.1. 1. Derive the equation for the frontier 2. Derive the minimum variance portfolio and the equation for the efficient frontier 3. Let's add a risk free asset among the possible investments with return r = 0.03 and derive the...
Which of the following is a TRUE statement? A The tangent portfolio is the risky portfolio...
Which of the following is a TRUE statement? A The tangent portfolio is the risky portfolio on the efficient frontier whose tangent line cuts the horizontal axis at the risk-free rate. B The new (or super) efficient frontier represents the portfolios composed of the risk-free rate and the tangent portfolio that offers the highest expected rate of return for any given level or risk. C The separation theorem states that the investment decision, (how to construct the portfolio of risky...
The efficient set of portfolios The following graph represents the relationship between the efficient set of...
The efficient set of portfolios The following graph represents the relationship between the efficient set of possible portfolios and various investors. Assuming that the black line represents the efficient frontier, which of the following best describes portfolios that lie to the left of this line? ___Indifferent ___Unattainable ___Efficient ___Inefficient On the preceding graph, the green and blue lines represent the indifference curves of two investors, investor Green and investor Blue. Which of these investors is more risk averse? ___Not enough...
98) Which of the following statements is FALSE A) The volatility declines as the number of stocks in a portfolio grows. B) An equally weighted portfolio is a porfolio in which the same amount is invested in eadh stock C) As the number of stocks in a portfolio grows large, the variance of the portfolio is determined primarily by the average covariance among the stocks D) When combining stocks into a portfolio that puts positive weight on each stock, unless...
letter b please
You have estimated the following probability distribution of returns for two stocks: Stock N Stock O Probability 0.20 0.30 Return 8% Probability 0.20 0.30 0.30 Return 26% 12 0.30 0.20 -4 0.20 -4 Calculate the expected rate of return and standard deviation for cach stock If the correlation between the returns on the two stocks is -0.40, calculate the portfolio returm and the standard deviation for portfolios containing 100%, 75 % , 50 % , 25 %...
29) Which of the following statements is FALSE? A) The Sharpe ratio of the portfolio tells us how much our expected retun will increase for a given increase in volatility B) We should continue to trade securities until the expected r return of each security equals its required return. Q) The required return is the expected return that is necessary to compensate for the risk that an investment will contribute to the portfolio. D) If security is required retun exceeds...
Question 1 1 pts The combination of a risk-free asset and a portfolio on the efficient frontier leads to the formation of a: security market line, which shows that investors will only prefer portfolios that lie on the top half of the minimum variance frontier capital market line, which shows that investors will invest in a combination of the riskless asset and the tangency portfolio capital market line, which shows that investors will invest all their money into the tangency...
please work all parts.
2. Stock A has expected return of 14% and volatility 30%. Stock B has expected return of 8% and volatility 19%. The correlation between two stocks is -0.2. The risk free interest rate is 4% (a) Find the expected returns, volatilities, and Sharpe ratios of portfolios that maintain 100.0% investment in Stock A and 100(1-x)% in Stock B, where x is given in the following table. Volatility Expected return Sharpe ratio 0.8 0.9 1.0 (b) How...
4. Investor equilibrium The following graph shows the set of portfolio opportunities for a multiasset case. The point RF corresponds to a risk-free asset, the red curve BME is the efficient frontier, the shaded area under the efficient frontier represents the feasible set of portfolios of risky assets, and the yellow curves II and I2 are indifference curves for a particular investor. EXPECTED RATE OF RETURN (Percent) 10 RISK (Portfolio's standard deviation) The points on the line PRF MZ represent:...
3 Question 3 In a market are listed two risky assets whose returns are described by the following parameters HA=0.01. MB = 0.07, 01 = 0.2 and op = 0.12. The correlation among the securities is constant and equal to p=0.1. 1. Derive the equation for the frontier 2. Derive the minimum variance portfolio and the equation for the efficient frontier 3. Let's add a risk free asset among the possible investments with return r = 0.03 and derive the...
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