Question
The following stocks issued by companies X, Y and Z are available and an investor wants to set up a two-asset portfolio. Use the following
The following stocks issued by companies X, Y and Z are available and an investor wants to set up a two-asset portfolio. Use the following information, explain which portfolio the investor should prefer. Assume that the investor will hold both assets in equal proportions.
Stock X
Stock Y
Stock Z
Today
Forecasted prices (after 1 month)
Probability
Today
Forecasted prices (after 1 month)
Probability
Today
Forecasted prices (1 month)
Probability
Rs40
Rs45
0.5
Rs50
Rs62
0.3
Rs60
Rs70
0.2
Rs42
0.2
Rs58
0.2
Rs65
0.4
Rs40
0.1
Rs48
0.4
Rs60
0.1
Rs38
0.1
Rs45
0.1
Rs59
0.3
Rs35
0.1
The relationship between the returns of the stocks are measured as follows:
Covariances
COVXY
0.5
COVYZ
-0.2
COVXZ
-0.05
The following stocks issued by companies X, Y and Z are available and an investor wants to set up a two-asset portfolio. Use the following information, explain which portfolio the investor should prefer. Assume that the investor will hold both assets in equal proportions.
Stock X
Stock Y
Stock Z
Today
Forecasted prices (after 1 month)
Probability
Today
Forecasted prices (after 1 month)
Probability
Today
Forecasted prices (1 month)
Probability
Rs40
Rs45
0.5
Rs50
Rs62
0.3
Rs60
Rs70
0.2
Rs42
0.2
Rs58
0.2
Rs65
0.4
Rs40
0.1
Rs48
0.4
Rs60
0.1
Rs38
0.1
Rs45
0.1
Rs59
0.3
Rs35
0.1
The relationship between the returns of the stocks are measured as follows:
Covariances
COVXY
0.5
COVYZ
-0.2
COVXZ
-0.05
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Managerial Accounting For Dummies
Authors: Mark P Holtzman, Karen Schoenebeck
1st Edition
1118116429, 978-1118116425
