Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

1) Consider portfolio P that is comprised from two stocks, A and B. Stock A has a standard deviation of return (A) of 25% while stock B has a standard deviation of return () of 40%. The correlation coefficient between the two stocks () is 0.5.

a) Graph (sketch) the relation between weight of stock A and variance of portfolio P. Plot weight of stock A along horizontal axis.

b) Deduce formula for weights of stocks A and B at which variance of portfolio P is minimal. Hint: Consider the variance of portfolio P as a function of the weight of stock A, wA, and minimize this function with respect to this weight. Find the values of weights.

2) zInvestors Robert and Linda have coe?cients of risk aversions equal to 1 and 2, respectively. They trade risky portfolio P with other investors and can borrow at 2% and lend at 1% in T-bill market. In particular, Robert borrows 20% of his complete portfolio while Linda lends 20% of her complete portfolio. Find the expected return and the variance of return of portfolio P.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M915175

Have any Question? 


Related Questions in Basic Finance

Question again1 interest rates the cost of money

QUESTION AGAIN #1 Interest rates, the cost of money, influence most all factors related to personal and corporate capital budgeting. The more obvious personal information for the cost of money is the rates associated wit ...

1 what is the advantage of using multiple measures for a

1. What is the advantage of using multiple measures for a single variable? What is the disadvantage? 2. Briefly explain how a ceiling effect (or floor effect) can affect the outcome of a research study.

A company is planning to add extra capacity to a plant

A company is planning to add extra capacity to a plant currently manufacturing 110 000 items per year. After an accurate sales forecast over the next few years, one is quite sure that the most likely value of the annual ...

A an investor buys european call on a share for sh 5 the

a) An investor buys European call on a share for sh 5. The share price is sh 90 and the strike price is sh 85. Under which circumstances does the investor make profit? When will the option be exercised? Draw a diagram to ...

Explain the advantages and disadvantages of implementing

Explain the advantages and disadvantages of implementing portfolio insurance using stock and puts in comparison to using stock and futures in a dynamic hedge strategy ? Explain how a portfolio manager might justify the p ...

If brads stocks double in value over the next five years

If Brad's stocks double in value over the next five years, what annual return would he realize? (Hint: Use the future value table in Appendix C.) Based on his projected annualized return, would it be advisable to sell th ...

1 give an example of why a review of bank assets may

1. Give an example of why a review of bank assets may indicate risk or opportunity of which you were not aware 2. Why review the disclosure of the market value of investments versus the book amount of investments for ban ...

A company exports 37000 products to chile nbspunder an

A company exports 37,000 products to Chile  under an import license that expires in five years. In Chile, the products are sold for the Chile peso equivalent of $45. Direct shipping costs in the United States and indirec ...

1 in analyzing the data from an experiment why is it not

1. In analyzing the data from an experiment, why is it not sufficient simply to examine the condition means to see whether they differ? 2. Assuming that all confounds were eliminated, the means of the conditions in an ex ...

1 how can strategic procurement contribute to the quality

1. How can strategic procurement contribute to the quality of products produced by a manufacturing organization? 2. Explain the rationale underlying volume consolidation. What are the risks associated with using a single ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen