3. Mark Harrywitz proposes to invest in two shares, X and Y. He expects a return
ID: 2662839 • Letter: 3
Question
3. Mark Harrywitz proposes to invest in two shares, X and Y. He expects a return of 12 percent from X and 8 percent from Y. The standard deviation of returns is 8 percent for X and 5 percent for Y. the correlation coefficient between the return is 2.
a.Compute the expected return and standard deviation of the following portfolics:
Portfolio Percentage in X Percentage in Y
1 50 50
2 25 75
3 75 25
4. There are few, if any real companies with negative betas. But suppose you found one with beta =-.25.
a.How would you expect this stock's rate of return to change if the overall market rose by an extra 5 percent? What if the market fell by an extra 5 percent?
b.You have $1 million invested in a well-diversified portfolio of stocks. Now you receive an additional $20,000 bequest. Which of the following actions will yield the safest overall portfolio return?
I invest $20,000 in Treasury bills (which have beta = 0)
Ii invest $20,000 in stock with beta= 1.
Iii invest $20,000 in the stock with beta = -.25
Explain your answer.
Your eccentric Aunt Claudia has left you $50,000 in Alcan shares plus $50,000 cash. Unfortunately her will requires that the Alcan stock not to be sold for one year and the $50,000 cash must be entirely invested in the one stocks shown.
What is the safest attainable portfolio under restrictions?
Correlation Coefficients
Alcan
BP
Deutsche Bank
KLM
LVNH
Nestle’
Sony
Standard
Deviation
Alcan
1.0
.39
.55
.54
.61
.26
.36
30.2%
BP
1.0
.23
.29
.22
.30
.14
23.9
Deutsche Bank
1.0
.36
.48
.16
.19
38.1
KLM
1.0
.49
.32
.50
54.5
LVMH
1.0
.02
.10
42.0
Nestle’
1.0
1.0
15.5
Sony
47.5
Portfolio Percentage in X Percentage in Y
1 50 50
2 25 75
3 75 25
Explanation / Answer
what is the safest attainable portfolio under restrictions?
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.