Compute the expected return and standard deviation, Financial Management


Consider the following information:


Stock A

Stock B




Share price, $



Standard deviation



Correlation between A and B


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
Put This is an agreement which is allowing a holder of privacies to sell them back to the issuer at a specified amount during a specified time interval. This technique protects

What is the investment opportunity schedule (IOS)?  How does it help financial managers make business decisions? The investment opportunity schedule illustrates graphically pro

XYZ company produces three products X,Y and Z. for the coming accounting period budgets are to be prepared based on following information. Budgeted Sales Product X       2,00

What are the Reasons why organisations grow Required to provide higher financial returns to investors e.g. increases the wealth of shareholders Possible to achieve econ

Q. Is Conservatism an investment strategy? Conservatism - An investment strategy aimed at long-term capital appreciation with low risk; moderate; cautious; opposite of aggressi

Federal Reserve Board The Federal Reserve Board controls the nation's monetary policy, regulates banks, and searches to keep the financial stability of the United States. Its t

a) Gross profit shows the difference between a firm's sales revenues and its direct cost of sales (COGS). Net profit, however, is calculated after deducting overheads (expenses) fr

TYPES OF DIVIDEND POLICY 1. Regular dividend policy: Payment of dividend at standard rate is known as regular dividend policy. 2. Stable dividend policy: Payment of fix

In a putable bond, the bondholder has the right to force the issuer to pay off the bond prior to the maturity date. Let us consider the previous example with the

There are two ways to estimate yield volatility - historical volatility and implied volatility. Thus far we have discussed how to calculate volatility by estimati