Question
24A) Suppose you currently own a two-asset portfolio consisting of Stocks A and B. Youve estimated the beta of Stock A to be 0.76, and
24A) Suppose you currently own a two-asset portfolio consisting of Stocks A and B. Youve estimated the beta of Stock A to be 0.76, and of Stock B to be 0.64. Based on todays trading prices, you currently have $3,591 invested in Stock A, and $5,415 invested in Stock B. The expected return of the broad stock-market is estimated to be 9.3% per year. One-year US Treasury bonds are currently quoted (in the standard quoting convention) as 97:18. You seek to identify an improved portfolio which has the same expected return as your current portfolio, but has the lowest possible level of total risk. In doing so, you plan to liquidate (sell) your current portfolio, and reinvest 100% of the proceeds in the improved portfolio. When constructing the improved portfolio, how much money (if any) should you invest in the broad stock-market portfolio? NOTE: If the broad stock-market portfolio is not part of the improved portfolio, then answer zero. Provide an answer using at least 4 digits of precision.
B) Stock Zs excess returns and the broad stock-markets excess returns have a correlation of 38%. Stock Z has an annualized variance of 2%. The broad stock-market has an annualized volatility of 15%.
One-year US Treasury zero-coupon bonds, with a face value of $1000, are currently trading at $950.
The broad stock-market has an expected return of 10.1% per year.
Determine the annualized expected return of Stock Z.
Provide an answer as a percentage
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