Andrea corbridge is considering forming a portfolio

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Reference no: EM13371386

Andrea Corbridge is considering forming a portfolio consisting of Kalama Corp. and Adelphia Technologies.  The two corporations have a correlation of -0.1789, and their expected returns and standard deviations are as follows:

 

Kalama Corp.

Adelphia Technologies

Expected return (%)

14.86

23.11

Standard Deviation (%)

23.36

31.89

  1. Calculate the frontier for all possible investment combinations of Kalama Corp. and Adelphia Technologies (from 0% to 100%, in 1% increments). Determine the optimal risky portfolio if the risk-free rate is 3%.
  2. Andrea has $50,000 and wants to earn a 19% expected return on her investment. What is the optimal manner in which to structure her portfolio-both in dollar amounts and in weights relative to her $50,000-based on the preceding information?
  3. Andrea is also seriously considering buying some stock in Medford Barnett Corporation (MBC). The stock prices of MBC and the S&P for the past 25 months are tabulated below. Andrea estimates that MBC will earn a 14% return during the next year, and she expects the market to earn a 12% return during the same time period.  In addition, she expects the relationship exhibited between the S&P and MBC to remain as it has in the past.  Assuming that Andrea would be pulling MBC into a fully diversified portfolio, is buying the MBC shares a good decision?

Month

S&P

MBC

1

1198.41

58.04

2

1228.81

65.36

3

1220.33

48.48

4

1234.18

53.32

5

1191.33

57.59

6

1191.50

49.23

7

1156.85

55.57

8

1180.59

50.99

9

1203.60

64.10

10

1181.27

50.45

11

1211.92

50.65

12

1173.82

51.23

13

1130.20

46.68

14

1114.58

51.09

15

1104.24

50.75

16

1101.72

59.80

17

1140.84

52.78

18

1120.68

49.22

19

1107.30

53.47

20

1126.21

49.26

21

1144.94

48.55

22

1131.13

61.32

23

1111.92

48.06

24

1058.20

58.88

25

1050.71

46.19

Reference no: EM13371386

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