Half of a portfolio consists of stock A, which has an expected return of 24.10% and a standard deviation of returns of 37.11%, and half of the portfolio consistsof stock B, which also has an expected return of 24.10% and a standard deviation of returns of 37.11%. If the returns of stock A and stock B do not moveperfectly together in the same direction by the same relative amount, then which one of the following assertions is true?The expected return of the portfolio is 24.10% and the standard deviation of the portfolio is 37.11%The expected return of the portfolio is 24.10% and the standard deviation of the portfolio is not 37.11%The expected return of the portfolio is not 24.10% and the standard deviation of the portfolio is not 37.11%The expected return of the portfolio is not 24.10% and the standard deviation of the portfolio is 37.11%

Option b: This option is correct. Step 1:We have to first calculate the expected return of the…

Answered: Half of a portfolio consists of stock…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 6P

See similar textbooks

Question

Half of a portfolio consists of stock A, which has an expected return of 24.10% and a standard deviation of returns of 37.11%, and half of the portfolio consists
of stock B, which also has an expected return of 24.10% and a standard deviation of returns of 37.11%. If the returns of stock A and stock B do not move
perfectly together in the same direction by the same relative amount, then which one of the following assertions is true?
The expected return of the portfolio is 24.10% and the standard deviation of the portfolio is 37.11%
The expected return of the portfolio is 24.10% and the standard deviation of the portfolio is not 37.11%
The expected return of the portfolio is not 24.10% and the standard deviation of the portfolio is not 37.11%
The expected return of the portfolio is not 24.10% and the standard deviation of the portfolio is 37.11%

Expert Solution

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Similar questions

The covariance between stocks A and B is 0.0014, standard deviation of stock A is 0.032, and standard deviation of stock B is 0.044. Which of the following is the most appropriate to depict the risk-return characteristics of a portfolio consisting of only stocks A and B, and explain why? E(R) E(R) E(R) В В A A А (A) (B) (C)
Assume I am holding a portfolio of two risky assets with standard deviations of 1. Assume also that I am holding the minimum variance portfolio of these two assets. I do not know the correlation of these assets but I do know that it's not equal to one. Which of the below statements is true based on the information above? O Portfolio's standard deviation is equal to 1/2. Portfolio's return is equal to 1/2. O Portfolio weights of the two assets are equal to 1/2. None of the above statements is true. Portfolio's Sharpe ratio is equal to 1/2.
he covariance between stocks A and B is 0.0014, standard deviation of stock A is 0.032, and standard deviation of stock B is 0.044. Which of the following is the most appropriate to depict the risk-return characteristics of a portfolio consisting of only stocks A
Q1) The covariance between stocks A and B is 0.0014, standard deviation of stock A is 0.032, and standard deviation of stock B is 0.044. Which of the following is the most appropriate to depict the risk-return characteristics of a portfolio consisting of only stocks A and B, and explain why? (Image attached as Q)
Which of the following statements regarding the graph of the SML is most accurate? A Select one OA. The beta of Portfolios A, B, and C are identical as they fall directly on the line. B. The expected return of Portfolio C is the difference between the market's expected return and the risk-free rate. C. Portfolio A has lower systematic risk than Portfolio B. D. The slope of the line is the market risk premium.
If a given stock in the portfolio had established 1.23 beta; the related expected return is at 11.7percent, and 3.5percent is the current earning of a risk-free asset; a. Determine the expected return on a portfolio that is equally invested in the two assets? b. If a portfolio of the two assets has a beta of 0.7, what are the portfolio weights? c. If a portfolio of the two assets has an expected return of 9%, what is its beta? d. If a portfolio of the two assets has a beta of 2.46, what are the portfolio weights? How do you interpret the weights for the two assets in this case? Discuss.
An investor has a portfolio of two assets A and B. The details are shown in the below table. Portfolio Details Asset Expectedreturn Standarddeviation Covariance (A, B) Expected Portfolio Return A 0.06 0.5 0.12 0.1 B 0.08 0.8 Which one of the following statements is NOT correct? a. The portfolio weight in asset A is -100%. b. The correlation of asset A and B’s returns is 0.3. c. The investor can benefit from a fall in the price of asset A. d. The variance of the portfolio is 2.33. e. The order of short selling is borrowing, buying, selling, and returning.
7. Which two of the following options correctly give rules for portfolio theory? A) Portfolio returns are a weighted average of the expected returns on the individual investments. B) Portfolio standard deviation is greater than the weighted average risk of the individual investments, except for perfectly negatively correlated investments. C) Portfolio standard deviation is less than the weighted average risk of the individual investments, except for perfectly positively correlated investments. D) Expected returns are a weighted average of the portfolio return on the group of investments.
In a portfolio with three different stocks, which of the following could not be true? Select one: a. The beta of the portfolio is less than the beta of each of the individual stocks. b. The riskiness of the portfolio is greater than the riskiness of one or two of the stocks. c. The riskiness of the portfolio is less than the riskiness of each stock held in isolation. d. The beta of the portfolio is greater than the beta of one or two of the individual stocks e. The beta of the portfolio is equal to the beta of one of the individual stocks
Which of the following statements about CAPM is true? a. The expected return of a zero-beta security or portfolio equals risk free rate. b. •The risk premium an investor expects to receive on any stock or portfolio increases with standard deviation. C. Beta measures total risk. On equilibrium, total risk is compensated by return. e. The beta of the market portfolio equals zero.
A portfolio that is positively correlated with the market portfolio but not particularly sensitive to market risk factors would have a beta that is A. Equal to zero. B. Equal to one. C. Less than zero. D. Between 0 and 1. E. Greater than 1.
Evaluate this statement: For any two-stock portfolio, a correlation coefficient of -1.0 guarantees a portfolio risk of zero.

SEE MORE QUESTIONS

Recommended textbooks for you

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

SEE MORE TEXTBOOKS