Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Assume Stocks A and B have the following characteristics: Stock Expected Return Standard Deviation A 9.4% 33.4% B 15.4% 62.4% The covariance between the returns

Assume Stocks A and B have the following characteristics:

Stock Expected Return Standard Deviation
A 9.4% 33.4%
B 15.4% 62.4%

The covariance between the returns on the two stocks is .0014.

a.

Suppose an investor holds a portfolio consisting of only Stock A and Stock B. Find the portfolio weights, XA and XB, such that the variance of her portfolio is minimized. (Hint: Remember that the sum of the two weights must equal 1.) (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.)

b. What is the expected return on the minimum variance portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
c. If the covariance between the returns on the two stocks is .05, what are the minimum variance weights? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.)
d. What is the variance of the portfolio in part (c)? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., .1616.)

A.)

Stock A weight = ?

Stock B weight= .2200

B.)

Expected return=10.72%

C.)

Stock A weight = ?

Stock b weight=?

D.)

Prtfolio variance=?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fundamentals Of Futures And Options Markets

Authors: John Hull

9th Edition

0134083245, 9780134083247

More Books

Students also viewed these Finance questions

Question

Whether training would be needed, and what methods would be used.

Answered: 1 week ago

Question

What should be the purpose of performance management and appraisal?

Answered: 1 week ago

Question

The issue of staff sensitivity to feedback

Answered: 1 week ago