Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Assume you wish to evaluate the risk and retum behaviors associated with various combinations of two stocks, Alpha Software and Beta Electronics, under three possible

image text in transcribed
image text in transcribed
Assume you wish to evaluate the risk and retum behaviors associated with various combinations of two stocks, Alpha Software and Beta Electronics, under three possible degrees of correlation, perfect positive, uncorrelated, and perfect negative. The average return and standard deviation for each stock appears here: a. If the returns of assets Alpha and Beta are perfectly positively correlated (correlation coefficient - + 1). over what range would the average return on portfolios of these stocks vary? In other words, what is the highest and lowest average return that different combinations of these stocks could achieve? What is the minimum and maximum standard deviation that portfolios Alpha and Beta could achieve? b. If the retums of assets Alpha and Beta are uncorrelated (correlation coefficient = 0), over what range would the average return on portfolios of these stocks vary? What is the standard deviation of a portfolio that invests 75% in Alpha and 25% in Beta? How does this compare to the standard deviations of Alpha and Beta alone? c. If the returns of assets Alpha and Beta are perfectly negatively correlated (correlation coefficient = -1), over what range would the average return on portfolios of these stocks vary? Calculate the standard deviation of a portfolio that invests 62.5% in Alpha and 37.5% in Beta a. If the returns of assets Alpha and Beta are perfectly positively correlated (correlation coefficient + 1), the range is between % and % (Round to one decimal place.) the a a portfolio that invests 75% in Alpha d star Data Table X nd to in order to copy its contents of the data table below into (Click on the icon here a spreadsheet.) Asset Alpha Beta Average Return, 6.6% 10.9% Risk (Standard Deviation), s 29.6% 50.6% Print Done Assume you wish to evaluate the risk and retum behaviors associated with various combinations of two stocks, Alpha Software and Beta Electronics, under three possible degrees of correlation, perfect positive, uncorrelated, and perfect negative. The average return and standard deviation for each stock appears here: a. If the returns of assets Alpha and Beta are perfectly positively correlated (correlation coefficient - + 1). over what range would the average return on portfolios of these stocks vary? In other words, what is the highest and lowest average return that different combinations of these stocks could achieve? What is the minimum and maximum standard deviation that portfolios Alpha and Beta could achieve? b. If the retums of assets Alpha and Beta are uncorrelated (correlation coefficient = 0), over what range would the average return on portfolios of these stocks vary? What is the standard deviation of a portfolio that invests 75% in Alpha and 25% in Beta? How does this compare to the standard deviations of Alpha and Beta alone? c. If the returns of assets Alpha and Beta are perfectly negatively correlated (correlation coefficient = -1), over what range would the average return on portfolios of these stocks vary? Calculate the standard deviation of a portfolio that invests 62.5% in Alpha and 37.5% in Beta a. If the returns of assets Alpha and Beta are perfectly positively correlated (correlation coefficient + 1), the range is between % and % (Round to one decimal place.) the a a portfolio that invests 75% in Alpha d star Data Table X nd to in order to copy its contents of the data table below into (Click on the icon here a spreadsheet.) Asset Alpha Beta Average Return, 6.6% 10.9% Risk (Standard Deviation), s 29.6% 50.6% Print Done

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

Introduction to Finance Markets Investments and Financial Management

Authors: Melicher Ronald, Norton Edgar

15th edition

9781118800720, 1118492676, 1118800729, 978-1118492673

More Books

Students also viewed these Finance questions

Question

Explain the Pascals Law ?

Answered: 1 week ago

Question

What are the objectives of performance appraisal ?

Answered: 1 week ago

Question

State the uses of job description.

Answered: 1 week ago

Question

=+ How does this differ from the Solow model?

Answered: 1 week ago