### Calculate variance of portfolio returns-standard deviation

Assignment Help Financial Management
##### Reference no: EM13917382

Mr. & Mrs. Shaw invest 60% of funds in stock A and the balance in stock B. The standard deviation of returns for Stock A is 10% and on B it is 20%. Calculate the variance of portfolio returns and standard deviation assuming the correlation between the returns is 1.0; assume the correlation is .5. Explain the different results between the two correlations, and which correlation has more risk?

#### Questions Cloud

 What is the current price of the preffered stock : Zap Inc's preffered stock pays out a quarterly dividend of \$0.75. The firm's beta on preffered stock is \$1.50, the T-bill is 3%, the S&P is 12%. What is the current price of the preffered stock? Firms resources on things like lavish office furnishings : Sometimes, the management of a corporation will waste a firm’s resources on things like lavish office furnishings and a corporate jet. Is this behavior more likely to occur when the firm is 100% equity financed or when it has some debt in its capital.. Provide rationale for the stock repurchase : MGM Grand said it plans to eventually buy back up to 20% of its shares (from stockholders) and announced a tender offer for half of them at a 31% premium (over the market price). Provide a rationale for the stock repurchase. Equity firm and net income is projected to grow : Dora Corp. is an all equity firm and its net income is projected to grow 20% in year 1, 25% in year 2, and 30% in year 3, and then 5.5 constant growths thereafter. The retention ratio is held constant at 60% and year 0 net income is 70Millioin. The f.. Calculate variance of portfolio returns-standard deviation : Mr. & Mrs. Shaw invest 60% of funds in stock A and the balance in stock B. The standard deviation of returns for Stock A is 10% and on B it is 20%. Calculate the variance of portfolio returns and standard deviation assuming the correlation between th.. Requires an initial investment in spare parts inventory : CSM Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for \$496,000 is estimated to result in \$195,000 in annual pretax cost savings. The press falls in the MACRS five-year class (MACRS Ta.. The dividends will grow at a constant rate : A stock will pay dividends of \$1.20 starting in year 4. The dividends for year 5, year 6, and year 7 will grow by 25%, 20%, and 12%. Finally, the dividends will grow at a constant rate of 6% forever. The required return on the stock is 11%. What shou.. About the expected return-risk-free rate : Stock Y has a beta of 1.01 and an expected return of 8.38 percent. Stock Z has a beta of .70 and an expected return of 7 percent. What would the risk-free rate have to be for the two stocks to be correctly priced relative to each other? What must be the opportunity cost of capital : A stock sells for \$30. The next dividend will be \$6 per share. If the return on equity ROE is a constant 15% and the company reinvests 20% of earnings in the firm, what must be the opportunity cost of capital?

### Write a Review

#### Position in treasury bond futures contracts

Green Backs Bank wishes to take a position in Treasury bond futures contracts, which currently have a quote of 96-240. Green Backs thinks interest rates will go down over the period of investment. Should the bank go long or short on the futures contr..

#### Constant dividend-return on your equity investments

Leslie's Unique Clothing Stores offers a common stock that pays an annual dividend of \$2.10 a share. The company has promised to maintain a constant dividend. How much are you willing to pay for one share of this stock if you want to earn a 12.60 per..

#### What is the equivalent annual savings from the purchase

Gluon Inc. is considering the purchase of a new high pressure glueball. It can purchase the glueball for \$120,000 and sell its old low-pressure glueball, which is fully depreciated, for \$20,000. The new equipment has a 10-year useful life and will sa..

#### Thinking of buying a craft emporium

You are thinking of buying a craft emporium, it is expected to generate cash flows of 30,000 per year in years 1 through 5, and \$40,000 per year in 6 through 10. if the appropriate discount rate is 8 % , what amount are you willing to pay for the emp..

#### Invest in a portfolio containing stock

You have \$130,000 to invest in a portfolio containing Stock X, Stock Y, and a risk-free asset. You must invest all of your money. Your goal is to create a portfolio that has an expected return of 14 percent and that has only 77 percent of the risk of..

#### What type of receivables does a farmer typically have

What type of receivables does a farmer typically have? What collateral is typically available? In addition to general economic conditions, what should a banker be watchful of before extending credit to a farmer?

#### Assume market is in equilibrium with required return equal

YUM Corp does not pay any dividends because it is expanding rapidly and needs to retain all of its earnings. However, investors expect YUM Corp to begin paying dividends, with the 1st dividend of \$1.25 coming 3 (three) years from today. The dividend ..

#### Explain the arbitrage opportunity

The price of a European put that expires in eight months and has a strike price of \$50 is \$3. The underlying stock price is \$53, and a dividend of \$1 is expected in three months and again in six months. Explain the arbitrage opportunity in the above ..

#### Divided between capital gains yield and dividend yield

Suppose your know that a company's stock currently sells for \$73.25 per share and the required return on the stock is 7.31 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield.

#### Coupon rate-what is the current bond price

Ninja Co. issued 12-year bonds a year ago at a coupon rate of 8.4 percent. The bonds make semi-annual payments. If the YTM on these bonds is 6.7 percent, what is the current bond price?

#### What is the total cost of the cash concentration system

Assuming that the deposit schedule is typical of each week, create two weeks of deposits and transfer clearing activity and calculate the average collected balance at the typical deposit bank.

#### Foreign exchange dealer-what is annualized rate of return

A foreign exchange dealer has \$1 million for a short-term money market investment. That is, he wants minimal risk in his investment, but he still wants to maximize the available return. Given the following market rates in the U.S. and London, what wo..