User Account

All Pages

Compute the expected return and standard deviation

Assignment Help Corporate Finance
Reference no: EM13210788

You are considering investing in the following stocks:

 

Expected Return

Standard Deviation

Stock A

10%

9%

Stock B

8%

6%

The correlation coefficient for the two stocks is -0.3. The risk-free rate is 1%.

1. Compute the expected return and standard deviation for a portfolio formed by combining the two stocks with the following weights:

a. Invest 10% in Stock A and 90% in Stock B

b. Invest 20% in Stock A and 80% in Stock B

c. Invest 50% in Stock A and 50% in Stock B

d. Invest 80% in Stock A and 20% in Stock B

e. Invest 90% in Stock A and 10% in Stock B

2. Using the Sharpe Ratio approach (here you can compute the shape ratio as [expected return less risk-free rate] over standard deviation. Which portfolio should you invest in?

3. Re-compute the expected return and standard deviation for the portfolios if the stocks are perfectly correlated (correlation coefficient is 1). What can you say about what the Sharpe Ratios of the portfolios that confirms the fact that diversification gives no benefit if stocks are perfectly correlated?

Reference no: EM13210788

Questions Cloud

State 3-heptyne is treated with ozone followed by hydrolysis : What two organic compounds result when 3-heptyne is treated with ozone followed by hydrolysis?
Compute the mole fraction of a : The volatile liquids A and B are confined to a piston and cylinder assembly. The pure vapor pressure of A is 165 torr, and for B is 85.1 torr. Initially only the liquid phase is present
What does a firms beta measure : What happens to the CAPM expected return if the beta increases? If the risk-free rate decreases? If the S&P500 expected return increases?
Define water at the indicated temperature : Determine whether each of the given amounts of solid will completely dissolve in the given amount of water at the indicated temperature.
Compute the expected return and standard deviation : What can you say about what the Sharpe Ratios of the portfolios that confirms the fact that diversification gives no benefit if stocks are perfectly correlated?
Depict the structures of all of the products : Using 2-butanone as an example, explain why this is true. Draw the structures of all of the products
Identify the risk factors : Conduct either a qualitative or quantitative risk assessment on this project. Identify the risk factors that you consider most important for the suspension bridge construction. How would you assess the riskiness of the project? Why?
Calculate the payback period of each project : How does your analysis change? Which project do you pick and calculate the payback period of each project. Compute the IRR of each project. Which project do you pick, and why?
Determine the differential settlement : Determine the differential settlement between the centre line of the ring beam and under the centre of beam. The inner and outer radii of the ring beam are 8m and 12m respectively.

Reviews

Write a Review

Corporate Finance Questions & Answers

  Find the amount for common stockholders

Written, Corporation has 300,000 outstanding shares of $2 par common stock and 60,000 shares of no-par 8 percent preferred stock with a stated value of dollar 5.

  Calculate the value of the merged company

Calculate the value of the merged company, the gains (losses) to each group of shareholders, NPV of the deal under different payment methods. Synergy remains the same regardless of payment method.

  Analyzing the total profit of college

Analyzing the total profit of college when there is decrease in enrollment due to increase in tuition fee - The college believes it can increase tuition to $24,000 but doing so will reduce enrollment by 20%. Should the college consider increasing t..

  Current state of valuing intellectual property

Discuss this issue and prepare a 3-4 page management brief for Acme's upper management group on the current state of valuing intellectual property.

  Multiple choice questions on time value of money

Multiple choice questions on time value of money - What's the future value of $2000 after three years if the appropriate interest rate is 8%, compounded semiannually?

  Question based on budgeting for financial planning

Theory question based on budgeting for financial planning - Check and discuss the key features that a budgetary system should have to encourage managerial, goal-congruent behavior

  What dollar amount did disney realize from sale

Evaluation of Transaction and currency swaps - At the time of the sale, the exchange rate was 124 = $1. What dollar amount did Disney realize from the sale of its yen proceeds?

  Prepare a five year table to amortize the premium

Suppose the same set of facts for Stacy Corporation as in Problem 10-2 except that market rate of interest of January 1, 2008, is 8 percent & proceeds from bond issuance equal $10,803.

  Scott county general fund

The following data pertains to the Scott County General Fund: Expenditures 14,800,000, Revenues 14,200,000

  Ealculate liams savings ratio and debt ratio

Calculate Liams savings ratio, debt ratio and debt-payments ratio and iIf Liam wishes to continue his education in 5 years, would he be better off investing in an RRSP or a TFSA?

  Firm need to sell to reach the cash break-even point

Pringle Sock Company determines its break-even point strictly on the basis of cash expenditures related to fixed costs. Its total fixed costs are $700,000, but 25 percent of this value is represented by depreciation.

  Find what is the length of the inventory period

The firm had a beginning inventory of $36,000 and an ending inventory of $47,000 and find what is the length of the inventory period

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!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

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