Two stocks have the same return and risk (standard deviation): 10 percent return with 20 percent risk.

Question:

Two stocks have the same return and risk (standard deviation): 10 percent return with 20 percent risk. You form a portfolio with 50 percent each of stock 1 and stock 2 to examine the effect of correlation on risk.

1. Calculate the portfolio return and risk if the correlation is 1.0.

2. Calculate the portfolio return and risk if the correlation is 0.0.

3. Calculate the portfolio return and risk if the correlation is –1.0.

4. Compare the return and risk of portfolios with different correlations.

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For book-img-for-question

Investments Principles Of Portfolio And Equity Analysis

ISBN: 9780470915806

1st Edition

Authors: Michael McMillan, Jerald E. Pinto, Wendy L. Pirie, Gerhard Van De Venter, Lawrence E. Kochard

See More Books

Question Posted: Mar 21, 2024 07:01 AM

See More Questions

PLEASE ANSWER IN A DETAILED MANNER, WITH EACH ANSWER PROPERLY RESPONDED TO EACH QUESTION. NOT IN A SLOPPY MANNER. I WOULD LIKE TO KNOW WHICH ANSWER GOES WITH EACH QUESTION. THANK YOU. Image...
Northern Virginia Community College HOW MUCH FINANCIAL RISK SHOULD YOU TAKE? Mark D. D'Antonio Nova Southeastern University FORT LAUDERDALE, FLORIDA, U.S.A. Abstract A successful retirement...
The annual return on each of four stocks for each of the next five years is assumed to follow a normal distribution, with the mean and standard deviation for each stock, as well as the correlations...
With the CARES Act costing over $2 trillion and the federal government facing a significant decline in tax revenue, explain the effectiveness of fiscal policy using the three claims outlined in the...
A finishing process packages assemblies into boxes. You have noticed variability in the boxes and desire to improve the process to fix the problem because some products fit too tightly into the boxes...
Distinguish between a stock split and a stock dividend. Is there any reason for the difference in accounting treatment of these two events? LO8
Using the ANES dataset, create a variable called presapp_index, which will combine these four variables: presapp_econ_x, presapp_foreign_x, presapp_ health_x, and presapp_job_x. Examine the variables...
The trial balance of Clayton Cleaners for the month ended September 30 is as follows: Data for the adjustments are as follows: a. Expired or used- up insurance, $ 800. b. Depreciation expense on...
Linkin Corporation is considering purchasing a new delivery truck. The truck has many advantages over the company's current truck (not the least of which is that it runs). The new truck would cost...
An investor is considering investing in a small-cap stock fund and a general bond fund. Their returns and standard deviations are given next and the correlation between the two fund returns is 0.10....
Based on investment information given next and the utility formula U = E(r) 0.5A 2 , answer the following questions. Returns and standard deviations are both expressed as percent per year. When...
How might outsourcing IT Security functions improve security?
Find the linear approximation at the given point: f(x) = cos(4x-) at x =
The labor costs of complying with national regulations in order to remain a certified provider of testing products and services to oil producers. GeoTest creates, calibrates and installs devices used...
Mrs. Cora Yank (age 42) is divorced and has full custody of her 10-year-old son, William. Mrs. Yank works as a medical technician in a Chicago hospital. Her salary was $38,400, from which her...
Midterm Project This assignment relates to the following Course Learning Requirements: CLR 1: Explain the basic components of a computer system in an office. CLR 3: Use an e-mail account and...
Sarah Young is planning to attend a billing conference in the next two months. Her place of employment will reimburse her for the conference price. Sarah should use which cash management for the...
Firm H has the opportunity to engage in a transaction that will generate $100,000 cash flow (and taxable income) in year 0. How does the NPV of the transaction change if the firm could restructure...
A fuel pump sends gasoline from a car's fuel tank to the engine at a rate of 5.88 10-2 kg/s. The density of the gasoline is 735 kg/m3, and the radius of the fuel line is 3.18 10-3 m. What is the...
How can a promotion manager aim a message at a certain target market with electronic media (like the Internet) when the customer initiates the communication? Give an example.
What promotion blend would be most appropriate for producers of the following established products? Assume average- to large-sized firms in each case and support your answer. a. Chocolate candy bars....
A small company has developed an innovative new spray-on glass cleaner that prevents the buildup of electrostatic dust on computer screens and TVs. Give examples of some low-cost ways the firm might...
Please help me answer all these question one by one. THE COMPANY IS GOING TO BE WALMART (PLEASE DO NOT USE AND PREVIOUS STUDENT ANSWERS) Remember, one-page memo first. search the web for these...
keAssignmentMain.do?invoker=&takeAssignmentSessionLocator=&inprogress=false Print Item Using the data below for the Ace Guitar Company: 6 A Region Sales B Region $500,000 Cost of goods sold $900,000...
please answer both parts Winston Company estimates that total factory overhead for the following year will be $979,200. The company has decided that the basis for applying factory overhead should be...

Two stocks have the same return and risk (standard deviation): 10 percent return with 20 percent risk.

Question:

Step by Step Answer:

Investments Principles Of Portfolio And Equity Analysis

Students also viewed these Business questions