Consider the following two stocks and T-Bill: Security A B T-Bill a. Expected return 12% 9%...
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Consider the following two stocks and T-Bill: Security A B T-Bill a. Expected return 12% 9% 2% O Price Per Share 30% $100 20% $75 0% PAB (Correlation) 0.8 Suppose you buy 50 shares of stock A and 50 shares of stock B. What is the expected return of this portfolio and what is its standard deviation? (Hint - first calculate what fraction of your investment in A and in B). b. Suppose that instead of buying 50 shares of stock A and 50 shares of stock B you decided to buy only 25 shares of stock A, 25 shares of stock B, and with the rest of the money buy Treasury bills. What is the expected return of this portfolio and what is its standard deviation. (Hint: use the result in (a) to calculate the standard deviation of a portfolio composed of half (A+B) and half in T-bill). Consider the following two stocks and T-Bill: Security A B T-Bill a. Expected return 12% 9% 2% O Price Per Share 30% $100 20% $75 0% PAB (Correlation) 0.8 Suppose you buy 50 shares of stock A and 50 shares of stock B. What is the expected return of this portfolio and what is its standard deviation? (Hint - first calculate what fraction of your investment in A and in B). b. Suppose that instead of buying 50 shares of stock A and 50 shares of stock B you decided to buy only 25 shares of stock A, 25 shares of stock B, and with the rest of the money buy Treasury bills. What is the expected return of this portfolio and what is its standard deviation. (Hint: use the result in (a) to calculate the standard deviation of a portfolio composed of half (A+B) and half in T-bill).
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Lets calculate the expected return and standard deviation for each scenario a Portfolio with 50 shares of stock A and 50 shares of stock B First lets ... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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