Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Question 2 (total of 12 marks): An investor has a portfolio of two securities, stock XYZ and an exchange traded fund (ETF) that tracks the

image text in transcribed

Question 2 (total of 12 marks): An investor has a portfolio of two securities, stock XYZ and an exchange traded fund (ETF) that tracks the ASX200 and charges negligible fees. Assume that the ASX200 ETF is the market portfolio. The following table summarizes the investors' holdings. Assume that returns are effective annual rates or net discrete returns. Portfolio Details XYZ ASX200 ETF Investment dollars $30,000 $70,000 Expected return 0.09 Total standard deviation Beta Correlation of returns between XYZ and ASX200 0.55 0.05 0.15 0.20 I? 1 Provide answers as decimals rounded to 6 decimal places. For example, if your answer is 0.23456789, write it as 0.234568. Question 2a (2 marks): What is the portfolio's total expected return pa? Answers: Question 2b (2 marks): What is the portfolio's total variance of returns pa? Answers: Question 2c (2 marks): What is the beta of stock XYZ? Answers: Question 2d (2 marks): What is the beta of the portfolio? Answers: Question 2e (2 marks): What is the portfolio's systematic variance of returns pa? Answers: Question 2f (2 marks): Assuming that stock XYZ and the ETF are fairly priced, calculate the risk free rate. Answers: Question 2 (total of 12 marks): An investor has a portfolio of two securities, stock XYZ and an exchange traded fund (ETF) that tracks the ASX200 and charges negligible fees. Assume that the ASX200 ETF is the market portfolio. The following table summarizes the investors' holdings. Assume that returns are effective annual rates or net discrete returns. Portfolio Details XYZ ASX200 ETF Investment dollars $30,000 $70,000 Expected return 0.09 Total standard deviation Beta Correlation of returns between XYZ and ASX200 0.55 0.05 0.15 0.20 I? 1 Provide answers as decimals rounded to 6 decimal places. For example, if your answer is 0.23456789, write it as 0.234568. Question 2a (2 marks): What is the portfolio's total expected return pa? Answers: Question 2b (2 marks): What is the portfolio's total variance of returns pa? Answers: Question 2c (2 marks): What is the beta of stock XYZ? Answers: Question 2d (2 marks): What is the beta of the portfolio? Answers: Question 2e (2 marks): What is the portfolio's systematic variance of returns pa? Answers: Question 2f (2 marks): Assuming that stock XYZ and the ETF are fairly priced, calculate the risk free rate. Answers

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

Financial Econometrics

Authors: Peijie Wang

1st Edition

0415426693, 978-0415426695

More Books

Students also viewed these Finance questions