Stocks A, B, and C have the same expected return and standard deviation. The following table shows the correlation between the returns on these stocks. Stock A Stock B Stock C Stock A +1.0 Stock B +0.9 +1.0 Stock C +0.1 -0.4 +1.0
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Stocks A, B, and C have the same expected return and standard deviation. The following table shows the correlation between the returns on these stocks.
|
Stock A |
Stock B |
Stock C |
|
|
Stock A |
+1.0 |
||
|
Stock B |
+0.9 |
+1.0 |
|
|
Stock C |
+0.1 |
-0.4 |
+1.0 |
Given these correlations, the portfolio constructed from these stocks having the lowest risk is a portfolio:
- Equally invested in stocks A and B.
- Equally invested in stocks A and C.
- Equally invested in stocks B and C.
- Totally invested in stock C.
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- A portfolio is comprised of equal weights of two stocks labeled Stock X and Stock Y. The covariance between Stock X and Stock Y is 0.10. The standard deviation of Stock X is 0.50, and the standard deviation of Stock Y is 0.50. Which of the following comes closest to the correlation coefficient between Stock X and Stock Y? Select one: a. 0.60 b. 0.50 c. 1.00 d. 0.00 e. 0.40a) 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) A A A (A) (B) (C) b) found to be half of the required return (Rs) on stock B. The risk-free rate (R) is one-fourth of the required Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is return on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A (DA) to beta of B (OB). c) Assume that the short-term risk-free rate is 3%, the market index S&P500 is expected to pay returns of 15% with the standard deviation equal to 20%. Asset A pays on average 5%, has standard deviation equal to 20% and is NOT correlated with the S&P500. Asset B pays on average 8%, also has standard deviation equal to 20% and has correlation of 0.5 with…Stocks A and B have the following returns: Stock A Stock B 1 0.09 0.06 0.05 0.02 3 0.13 0.05 4 - 0.01 0.02 5 0.08 - 0.03 a. What are the expected returns of the two stocks? b. What are the standard deviations of the returns of the two stocks? c. If their correlation is 0.48, what is the expected return and standard deviation of a portfolio of 52% stock A and 48% stock B? a. What are the expected returns of the two stocks The expected return for stock A is 1. (Round to three decimal places.) The expected return for stock B is 1. (Round to three decimal places.) b. What are the standard deviations of the returns of the two stocks? The standard deviation of the return for stock A is 1. (Round to four decimal places.) The standard deviation of the return for stock B is 1. (Round to four decimal places.) c. If their correlation is 0.48, what is the expected return and standard deviation of a portfolio of 52% stock A and 48% stock B? The expected return for the portfolio is 1. (Round to four…
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