The top 5 stocks in the S&P 500 index, when ranked by market capitalization, make up...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
The top 5 stocks in the S&P 500 index, when ranked by market capitalization, make up 22% of the total market capitalization of the S&P 500 index. Numerical estimates of the mean (or expected) rates of return values of these top five stocks, expressed in decimal (not percentage) form, are listed in the table below. STOCK AAPL Apple, Inc. Amazon.com Inc. Microsoft Corp. Alphabet, Inc. Facebook, Inc. TICKER AAPL 0.21 AAPL AMZN 0.12 AMZN MSFT GOOG FB MEAN RETURN MSFT 0.17 0.69 0.65 The variance of returns (entries on the main diagonal) and covariances between returns of these top five stocks, expressed in decimal (not percentage) form, are as follows: 0.44 0.36 0.41 GOOG 0.13 FB 0.16 AMZN MSFT GOOG FB 0.12 0.17 0.13 0.16 0.15 0.12 0.10 0.12 0.12 0.19 0.14 0.15 0.10 0.14 0.15 0.14 0.12 0.15 0.14 0.21 Assuming there is a risk-free asset available in addition to these 5 risky assets, determine the portfolio weightings for each of these stocks of the unique fund F as defined in the One-fund theorem of Modern Portfolio Theory. Note that short positions (negative weights) are permissible and the sum of all the weights must be equal to one. The annual risk-free rate is 5%. What is the optimal portfolio weight for Amazon.com Inc. (ticker: AMZN)? Please express your answer in decimal (not percentage) form and round your numerical answer to two decimal places. You would like to invest $10,000 and seek an expected return of 75% annually. A friend tells you that this is impossible since the stock with the highest annual expected return, from the table above, is AAPL with an expected annual return of 69%. Your friend advises you to invest all the $10,000 in AAPL. Assuming there is no risk-free asset available and short selling is allowed, is it possible to allocate your $10,000 amongst the 5 stocks in the table to achieve an expected return of 75%? • If so, what is the optimal number of dollars to invest in AAPL such that the expected portfolio return is 75% while minimizing the portfolio variance? • If not, then enter an answer of 10,000. Please round your numerical answer to the nearest integer number of dollars. The top 5 stocks in the S&P 500 index, when ranked by market capitalization, make up 22% of the total market capitalization of the S&P 500 index. Numerical estimates of the mean (or expected) rates of return values of these top five stocks, expressed in decimal (not percentage) form, are listed in the table below. STOCK AAPL Apple, Inc. Amazon.com Inc. Microsoft Corp. Alphabet, Inc. Facebook, Inc. TICKER AAPL 0.21 AAPL AMZN 0.12 AMZN MSFT GOOG FB MEAN RETURN MSFT 0.17 0.69 0.65 The variance of returns (entries on the main diagonal) and covariances between returns of these top five stocks, expressed in decimal (not percentage) form, are as follows: 0.44 0.36 0.41 GOOG 0.13 FB 0.16 AMZN MSFT GOOG FB 0.12 0.17 0.13 0.16 0.15 0.12 0.10 0.12 0.12 0.19 0.14 0.15 0.10 0.14 0.15 0.14 0.12 0.15 0.14 0.21 Assuming there is a risk-free asset available in addition to these 5 risky assets, determine the portfolio weightings for each of these stocks of the unique fund F as defined in the One-fund theorem of Modern Portfolio Theory. Note that short positions (negative weights) are permissible and the sum of all the weights must be equal to one. The annual risk-free rate is 5%. What is the optimal portfolio weight for Amazon.com Inc. (ticker: AMZN)? Please express your answer in decimal (not percentage) form and round your numerical answer to two decimal places. You would like to invest $10,000 and seek an expected return of 75% annually. A friend tells you that this is impossible since the stock with the highest annual expected return, from the table above, is AAPL with an expected annual return of 69%. Your friend advises you to invest all the $10,000 in AAPL. Assuming there is no risk-free asset available and short selling is allowed, is it possible to allocate your $10,000 amongst the 5 stocks in the table to achieve an expected return of 75%? • If so, what is the optimal number of dollars to invest in AAPL such that the expected portfolio return is 75% while minimizing the portfolio variance? • If not, then enter an answer of 10,000. Please round your numerical answer to the nearest integer number of dollars.
Expert Answer:
Answer rating: 100% (QA)
The One fund theorem implies that all investors will combine the Risk free Asset with the Optim... View the full answer
Related Book For
Business Statistics In Practice
ISBN: 9780073401836
6th Edition
Authors: Bruce Bowerman, Richard O'Connell
Posted Date:
Students also viewed these finance questions
-
What is meant by the 80/20 rule about suppliers mean. a) 80 percent of purchasing spend goes to 20 percent of suppliers b) 80 percent of purchasing spend equals 20 percent of a company's profi c) 80...
-
What is a characteristic microstructure of a glass? How can it be described in terms of its thermodynamic origins?
-
Question 1 (4 points) The most expensive hotels to operate are hotels. Da O b suburban city centre O c resort Od airport
-
The SEC criticized Frank Sinopoli for not sending an audit inquiry letter to Geo Securities external legal counsel. Describe the nature and purpose of such a letter. Do you agree with the SEC that...
-
In January 2010, Salem Corporation, purchased $350,000 of new MACRS 5-year property in the US. This equipment was placed in service May 1, 2010. Salem wants to take as much depreciation in 2010 as...
-
Find the primes p, q if n = pq = 5,446,367 and
-
Yamaguchi Company makes printed circuit boards in a suburb of Kyoto. The production process is automated with computer-controlled robotic machines assembling each circuit board from a supply of...
-
Fill in the missing figures for each of the following independent cases: (Round all rates to the nearest cent and all totals to the nearestdollar.) Case 1 Case 2 Units produced. Standard hours...
-
Investors tend to focus on the bottom line when conducting financial analyses. Thus far, you have calculated earnings per share (EPS) as the net income available to common shareholders divided by the...
-
One way to see whether this procedure will be successful is to split the original data set into two subsets: one subset for estimation and one subset for validation. A regression equation is...
-
conducting an interview (in person or via a different format) with someone who is currently working closely with a small business, a start up, or an entrepreneurial venture. Topics covered in the...
-
If you were a CEO, what level of social responsibility would you aspire to? How might you go about attaining it?
-
List the factors that affect comparability of financial statements between years but would normally not result in a modification of the standard auditor's report.
-
Under what condition would an auditor issue a disclaimer of opinion rather than an "except for" qualification?
-
What is the purpose of a disclaimer of opinion and when is it used?
-
Would setting a specific maximum price to spend on a cycle exercise machine be an objective or a criterion?
-
Lance Lawn Services reports warranty expense by estimating theamount that eventually will be paid to satisfy warranties on itsproduct sales. For tax purposes, the expense is deducted when thewarran 2...
-
Determine by direct integration the values of x for the two volumes obtained by passing a vertical cutting plane through the given shape of Fig. 5.21. The cutting plane is parallel to the base of the...
-
What lour assumptions do we make about the simple linear regression model?
-
Consider the partial relative frequency distribution of consumer preferences for four products-W, X, Y, and Z-that is shown in the page margin. a. Find the relative frequency for product X. b. If 500...
-
Suppose that yearly health care expenses for a family of four are normally distributed with a mean expense equal to $3,000 and a standard deviation of $500. An insurance company has decided to oiler...
-
Feng Company installs a computerized manufacturing machine in its factory at the beginning of the year at a cost of $42,300. The machines useful life is estimated at 10 years, or 363,000 units of...
-
In early January 2004, LabTech purchases computer equipment for $147,000 to use in operating ac tivities for the next four years. It estimates the equipments salvage value at $30,000. Prepare tables...
-
Cemer Manufacturing purchases a large lot on which an old building is located as part of its plans to build a new plant. The negotiated purchase price is $225,000 for the lot plus $120,000 for the...
Study smarter with the SolutionInn App