Question

SFF 7 5:0 Assume there is a fixed exchange rate between the Euro and U.S. dollar. The expected return and standard deviation of return on the U.S. stock market are 16% and 13%, respectively. The expected return and standard deviation on the DAX stock market are 11% and 18%, respectively. The covariance of returns between the U.S. and German stock market is 1.5%. If you invested 50% of your money in the German (DAX) stock market and 50% in the U.S. stock market, the expected return on your portfolio would be Multiple Choice 12.5%. 12.0%. 13.0%. 13.5%. 5:02 PM

Answer 1

Ans is 13.5%

А B с D 1 16% 11% Standard Deviation 13% 18% 2 Market Weights Expected 3 US stock market 0.50 4 DAX stock market 0.50 5 8 1. Portfolio expected return 9 Portfolio return = Return1 *Weight 1+ Return2. Weight 2 10 13.5% 11 -

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А B D 1 Expected Return 0.16 0.11 Standard Deviation 0.13 0.18 2 Market Weights 3 US stock market 0.5 4 DAX stock market 0.5 5 8 1. Portfolio expected return 9 Portfolio return = Return1 *Weight 1+ Return2. Weight 2 10 = (C3B3)+(C46B4) 11