10

Anne Grace has a $900000 diversified portfolio. She subsequently inherits ABC Company common stock worth $100 000. Her financial adviser provided her with the following estimates: Risk and return characteristics The correlation coefficient of the ABC stock returns with the original returns is 0.40. Please answer with monthly expected returns and monthly standard deviations: you do not need to annualise the expected returns or standard deviations. If Grace sells the ABC stock, she will invest the proceeds in risk-free government securities yielding 0.42% monthly. Assuming Grace sells the ABC stock and replaces it with the government securities, calculate the expected return of her new portfolio which includes the government securities. List your answer in percent, rounded to 3 decimal places (i.e. 3.294, not 0.03294). Do not use a percent (\%) sign. The margin for error is 0.002. If Grace sells the ABC stock, she will invest the proceeds in risk-free government securities yielding 0.42% monthly. Assuming Grace sells the ABC stock and replaces it with the government securities, calculate the covariance of the government security returns with the original portfolio returns. List your answer in decimal form, rounded to 4 decimal places (i.e. 0.0329, not 3.29% or 329%2 ). The margin for error is 0.0002. If Grace sells the ABC stock, she will invest the proceeds in risk-free government securities yielding 0.42% monthly. Assuming Grace sells the ABC stock and replaces it with the government securities, calculate the standard deviation of her new portfolio which includes the government securities. List your answer in percent, rounded to 2 decimal places (i.e. 3.29, not 0.0329). Do not use a percent (\%) sign. The margin for error is 0.02