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Bauer has $1,000,000 to invest and is considering the merits of the following two stocks Co. A and B Inc. The possible monthly rate of
Bauer has $1,000,000 to invest and is considering the merits of the following two stocks Co. A and B Inc. The possible monthly rate of return of stocks is shown as below: Monthly Rate of Return of Stocks A and B for the coming month (Dec 2021): (a) Calculate the expected rate of return and variance of rate of return of Stock A and Stock B. (12 marks) (b) Bauer plans to construct a portfolio consisting of 10,000 shares of Stock A and 6,000 shares of Stock B. At the end of the Dec 2021, Stocks A and B are currently trading at $70 and $50 respectively. Calculate the weight of the Stock A and Stock B in the portfolio. (3 marks) (c) Calculate the expected rate of return and variance of the portfolio as stated in part (b), given the covariance is 0.0018( or 18%2). (6 marks)
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