Deduce formula for weights of stocks

Assignment Help Finance Basics
Reference no: EM139403

Q. 1) Consider portfolio P that is comprised from two stocks, A also B. Stock A has a standard deviation of return (A) of 25% while stock B has a standard deviation of return () of 40%. The correlation co-efficient between the two stocks () is 0.5.

a) Graph (sketch) the relation between weight of stock A also variance of portfolio P. Plot weight of stock A along horizontal axis.

b) Deduce formula for weights of stocks A also B at which variance of portfolio P is minimal. Hint: Consider the variance of portfolio P as a function of the weight of stock A, A, also minimize this function with respect to this weight. Find the values of weights.

2) Investors Robert also Linda have coefficients of risk aversions equal to 1 also 2, respectively. They trade risky portfolio P with other investors also can borrow at 2% also lend at 1% in T-bill market. In particular, Robert borrows 20% of his complete portfolio while Linda lends 20% of her complete portfolio. Find the expected return also the variance of return of portfolio P.

Reference no: EM139403

Questions Cloud

Business owners equity at commencement of year : If opportunity cost of capital is 14%, compute the present value of business owners' equity at commencement of year.
Company had no amortization charges also no non-operating : Operating costs other than reduction, also $5,402 of depreciation. Company had no amortization charges also no non- operating income.
National newsmagazine publishes : National newsmagazine publishes the article on efforts to limiting smoking in public places.
Shaw for breaking of contract : On April 14, 1994, Bill Shaw, retired policeman, offered to sell Thurgood his 1965 Mustang convertible for= $1,000.
Deduce formula for weights of stocks : Deduce formula for weights of stocks A also B at which variance of portfolio P is minimal.
Goal is to generate a portfolio with the expected return : If your goal is to generate a portfolio with the expected return of 14.25%, how much money will you invest in stock A. In Stock B.
Find out the standard deviation of returns over this iod : Find out the variance of returns over this each iod. Find out the standard deviation of returns over this each iod.
Explain fully the reasons for your choice : Could this be balance sheet for St. Ann's Credit Union or Bank of America. Explain fully the reasons for your choice.
Unemployment rate been affected over past two years : How has unemployment rate been affected over past two years by Fed's policy of quantitative easing.

Reviews

Write a Review

 

Finance Basics Questions & Answers

  Trade with government of the oil producing nation

In trade with government of the oil producing nation. Callaghan Motors' bonds have ten years remaining to maturity.

  Eva analysis

Using an EVA analysis, should Laidlaw acquire the new piece of equipment?

  Susie can earn the nominal annual rate of return

Susie can earn the nominal annual rate of return of= 12%, compounded semi-annually.

  Investment management assignment

Prepare a report recommending the appropriate investment of AUD$3 million for a five year investment period for a particular investment client.

  Determine net present value of the acquisition

Determine net present value (NPV) of the acquisition to DM shareholders when it costs an average $30 per share to acquire all of the outstanding shares?

  Various techniques of inventory management

An investor is thinking of investing in a recurring deposit scheme that offers an interest rate of 12% per annum

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  Present and defend the budget

Given a description of a new business, new product, service or project develop, present and defend the budget.

  Prepare northern bell''s consolidated financial statements

Prepare Northern Bell's consolidated financial statements for December 31, 20X9, assuming that Golden Bell's functional currency is a)  the Canadian dollar, and  b)  the foreign currency unit.

  What are the factor might help to improve the capm

DESCRIBE how you have arrived at the calculations AND provide a summary table of them

  Determine the mean and standard deviation of the returns

Determine the mean and standard deviation of the returns

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd