Compute the expected return and standard deviation, Financial Management

Question:

Consider the following information:

 

Stock A

Stock B

Beta

0.8

1.4

Share price, $

20

40

Standard deviation

25%

50%

Correlation between A and B

0.25

Treasury bills currently yield 2%, and the market risk premium is 6%.

(a) Compute the expected return and standard deviation of a portfolio of 100 shares of Stock A and 100 shares of Stock B.

(b) Ajay has $10,000 to invest.  He plans to invest $4,000 in Stock B.  He will allocate the rest of his money to Treasury bills and Stock A.  His goal is to construct a portfolio with a beta of 1.0.  Compute the investment amounts (in dollars) in Treasury bills and Stock A required to achieve the goal.

Posted Date: 2/16/2013 5:21:10 AM | Location : United States







Related Discussions:- Compute the expected return and standard deviation, Assignment Help, Ask Question on Compute the expected return and standard deviation, Get Answer, Expert's Help, Compute the expected return and standard deviation Discussions

Write discussion on Compute the expected return and standard deviation
Your posts are moderated
Related Questions
Q. Explain about Pay Back Method? Pay Back Method (PB) :- The payback process is the simplest method. This method computed the number of years required to pay back the original

Return Enhancement can be explained using following heads: Use of a Valuation Model: An investor having access to a bond valuation model can bu

What is the meaning of Financing decision Financing decision of a firm relates to choice of the proportion of these sources to finance investment requirements.

Let us consider a situation wherein a position in an interest rate dependent asset such as a bond portfolio or a money market security is hedged by using an interest ra

Best practice or functional benchmarking Compare an internal function to 'the best' however not necessarily an organisation in same industry for example compare administrati

Q. Computation of overall Cost of Capital? Computation of Value of the Firm (V) & Overall Cost of Capital when debt is lowered to Rs, 1, 00,000 When the debt is lowered to R

Define in the Modigliani-Miller equation (MM equation), why is the market value of the levered firm greater as compared to the market value of an equivalent unlevered firm? Th

Suppose, you are working as an investment consultant in a consultancy firm and most of your clients are habitual investors, who are maintaining their own portfolios comprising of v

Are there any legal factors that could restrict a corporation in its attempt to pay cash dividends to common stockholders?  Explain. A firm may be lawfully restricted as to the

SHAREHOLDER VALUE There are various measures used by market analysts and financial experts to derive the maximum Shareholder Value of a particular company but we would take the