Reference no: EM131330288
Suppose you have two stocks that you are able to invest in that have the following return properties over the past 5 years:
TOL (Annual Return: 20%, Standard Deviation of Returns: 15%)
BGSU (Annual Return 9%, Standard Deviation of Returns: 11%)
Correlation Coefficient: -.3
a) What is the expected return and standard deviation of an equally weighted portfolio of these two stocks?
b) What portfolio weights will lead to the minimum variance portfolio and what is the expected return of the minimum variance portfolio?
c) Plot the two securities in Expected Return/Standard Deviation space and identify each security.
d) Add the minimum variance and equally weighted portfolios to your plot.
e) Add the efficient frontier to your plot and discuss where you expect the Markowitz optimal portfolio to lie.
f) Add a risk free asset to your plot and draw the potential portfolio combinations with the Markowitz portfolio and the risk free asset (Capital Market Line).
g) Discuss how investors with low, medium, and high risk aversion will allocate their assets along the Capital Market Line.
What is the initial cash flow for the project
: Goodweek Tire Inc has recently developed a new tire. the Super Tread, and must decide whether to make the investment. The research and development costs so far total $10 million. Market research (costing $5 million) shows that there is significant de..
|
What’s the profit of the straddle when stock price
: An investor purchased a call option for $2.00 two months ago that allows the investor to purchase one share at $30. The option is now about to expire. You currently own both a call option and a put option on the same stock. Explain. What’s the profit..
|
Different personalities is to treat everyone with respect
: This week the theory suggests that one way to work effectively with different personalities is to treat everyone with respect. How might a leader deal with a subordinate who is perpetually rude, insensitive, and disrespectful to others? Answer in 75 ..
|
Trader was found guilty of violating insider trading laws
: A trader was found guilty of violating insider trading laws. As part of his sentencing, he had to forfeit the excessive profits earned on the illegal trades. What does this conviction indicate about the current form of market efficiency? Identify and..
|
Standard deviation of an equally weighted portfolio
: What is the expected return and standard deviation of an equally weighted portfolio of these two stocks? What portfolio weights will lead to the minimum variance portfolio and what is the expected return of the minimum variance portfolio? Plot the tw..
|
Classic theories of the term structure of interest rates
: Identify and briefly describe the three classic theories of the term structure of interest rates. Identify and describe four of the six components of nominal interest rates as supported by modern term structure theory.
|
Prepared a cash budget the owner of the ladder company
: After two years of business the lucky ladder company decides to apply or a bank loan to finance a new store although the company has been very succesful. it had never prepared a cash budget the owner of the ladder company used the information from th..
|
Compounded monthly and the deferral period
: How much would a business have to invest in a fund to receive $10,000 at the end of every month for 5 years? The fund has an interest rate of 4.50% compounded monthly and the deferral period is 3 years
|