Problem 5 (Efficient frontier and portfolio choice)
Consider the following expected returns, volatilities, and correlations:
Stock | Expected return | Standard deviation | Correlation with Duke Energy | Correlation with Microsoft | Correlation with Wal-Mart |
Duke Energy | 14% | 6% | 1 | -1 | 0 |
Microsoft | 44% | 24% | -1 | 1 | 0.7 |
Wal-Mart | 23% | 14% | 0 | 0.7 | 1 |
(a) Consider a portfolio consisting of only Duke Energy and Microsoft. The percentage of your investment (portfolio weights) that you would place in Microsoftstock to achieve a risk-free investment should be closest to:
(1) 15%
(2) 4%
(3) 23%
(4) 10%
(b) The expected return of a portfolio that is equally-invested in Duke Energy and Microsoft is closest to:
(1) 28%
(2) 29%
(3) 24%
(4) 23%
(c) The volatility of a portfolio that is equally-invested in Duke Energy and Microsoft is closest to:
(1) 8%
(2) 9%
(3) 11%
(4) 6%
(d) The expected return of a portfolio that consists of a long position of $10,000 in Wal-Mart and a short position of $2,000 in Microsoft is closest to:
(1) 21%
(2) 12%
(3) 27%
(4) 18%
(e) The volatility of a portfolio that consists of a long position of $10,000 in Wal-Mart and a short-position of $2,000 in Microsoft is closest to:
(1) 9%
(2) 14%
(3) 11%
(4) 12%
(f) Consider a portfolio consisting of only Microsoft and Wal-Mart. Calculate the expected return on such a portfolio when the weight on Microsoft is 0%, 25%, 50%,75%, and 100%.
(g) Consider a portfolio consisting of only Microsoft and Wal-Mart. Calculate the volatility of such a portfolio when the weight on Microsoft is 0%, 25%, 50%, 75%,and 100%.
(h) Plot the efficient frontier.
Problem 5 (Efficient frontier and portfolio choice)
Consider the following expected returns, volatilities, and correlations:
Use the table for the question(s) below. Consider the following expected returns, volatilities, and correlations: Stock Expected Return Standard Deviation Correlation with Duke Energy Correlation with Microsoft Correlation with Wal-Mart Duke Energy 14% 6% 1.0 -1.0 0.0 Microsoft 44% 24% -1.0 1.0 0.7 Wal-Mart 23% 14% 0.0 0.7 1.0 The volatility of a portfolio that is equally invested in Duke Energy and Microsoft is closest to:
Use the table for the question(s) below. Consider the following expected returns, volatilities, and correlations: Stock Expected Return Standard Deviation Correlation with Duke Energy Correlation with Microsoft Correlation with Wal-Mart Duke Energy 14% 6% 1.0 -1.0 0.0 Microsoft 44% 24% -1.0 1.0 0.7 Wal-Mart 23% 14% 0.0 0.7 1.0 The expected return of a portfolio that consists of a long position of $10,000 in Wal-Mart and a short position of $2000 in Microsoft is closest to: a.12% b.27% c.18% d.21%
Please show work on excel with equations. Thank you 16 #5 Expected 17 Stock 18 Correlation with Standard Correlation with Correlation with Duke Energy Return Deviation Microsoft Wal-Mart 19 Duke Energy 14% 6% -1 20 Microsoft 44% 24% -1 0.7 21 Wal-Mart 23% 14% 0.7 22 23 (a) Usin above table, calculate the volatility of a portfolio that is equally invested in Duke Energy and Microsoft. 24 (b) Usin above table, calculate the volatility of a portfolio that is equally...
Suppose Johnson & Johnson and Walgreens Boots Alliance have expected returns and volatilities shown below, with a correlation of 21%. Expected Return Standard Deviation Johnson & Johnson 6.90% 17.90% Walgreens Boots Alliance 9.60% 21.60% Calculate the expected return and the volatility of a portfolio that is equally invested in both stocks. For the portfolio in (a), if the correlation between two stocks were to increase, would the expected return of the portfolio rise or fall? Would the volatility of the...
Suppose Johnson & Johnson and the Walgreen Company have the expected returns and volatilities shown below, with a correlation of 21%. E[R] SD[R] Johnson & Johnson 5% 14% Walgreen Company 10% 20% Consider a portfolio that is equally invested in Johnson & Johnson's and Walgreen's stock (a) Calculate the expected return as a percent. % (b) Calculate the volatility (standard deviation) of returns as a percent. (Round your answer to two decimal places.) %
Suppose Johnson & Johnson and the Walgreen Company have the expected returns and volatilities shown below, with a correlation of 22.9%. Johnson & Johnson Walgreen Company E[R] 7.6% 9.7% SD [R] 15.2% 19.6% For a portfolio that is equally invested in Johnson & Johnson's and Walgreen's stock, calculate: a. The expected return. b. The volatility (standard deviation). a. The expected return. The expected return of the portfolio is %. (Round to one decimal place.) b. The volatility (standard deviation). The...
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...
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...
How do you get this answer? Portfolio Weight 0.25 Correlation w Market Portfolio 0.7 0.6 0.5 Volatility 14% 18% 15% Firm Taggart Transcontinental Wyatt Oi 0.35 0.40 Rearden Metal The volatility of the market portfolio is 10%, the expected return on the market is 12%, and the risk-free rate of interest is 4% The Sharpe Ratio for the market portfolio is closest to O A. 0.40 O B. 0.56 O C. 0.48 D. 0.80
Suppose that youu currently have $250,000 invested in a portfolio with an expected return of 12% and a volatility of 10%. the efficient (tangent) portfolio has an expected return of 17% and a volatility of 12%. the risk-free rate of interest is 5%. the sharpe ratio for the efficient portfolio is closest to: a) 1,0 b) 1,4 c) 0,7 d) 1,2