Here are some characteristics of two securities

Assignment Help Financial Management

Reference no: EM131511833

Here are some characteristics of two securities:

Security 1 E(R1) = .10 V1 = 0.0025 SD=0.05

Security 2 E(R2) = .16 V2 = 0.0064 SD=0.08

a) Suppose the investor can only hold a single stock.

i) Which security should she choose if she wants to maximize expected returns?

ii) Which security should she choose if she wants to minimize risk?

b) Now assume that short sales are not allowed. (What does this mean for portfolio weights?) Suppose the correlation of returns on the two securities is +1.0, what is the optimal combination of securities 1 and 2 that should be held by the investor whose objective is to minimize risk?

c) Suppose the correlation of returns is -1.0, what fraction of the investor's net worth should be held in security 1 and in security 2 in order to produce a zero risk portfolio?

d) What is the expected return of the portfolio in C? How does this compare with the riskless return on Treasury Bills of 10%? Would the investor want to invest in Treasury Bills?

Reference no: EM131511833

Questions Cloud

Describe external oil and gas pipeline coating in 1000 words : Describe External oil and gas pipeline coating in 1000 Words

What is the total interest for the four years : How much will be available in four years? Prepare the journal entry that Alan should make on January 1. What is the total interest for the four years?

What is required return-senior bond issued by large company : What is the required return on a 9-year, A-rated, Senior bond issued by a large company?

Review of the sources of funds for non-financial corporation : A review of the sources of funds for non-financial corporations since 1999 indicates that..

Here are some characteristics of two securities : Which security should she choose if she wants to maximize expected returns? Which security should she choose if she wants to minimize risk?

What is the current value of the lease : Given a discount rate of 10% what is the current value of the lease?

Describe the pattern of change for total revenue : Describe the pattern of change for "Total Revenue" and also Income from Continuing Operations" in one paragraph.

Economic order quantity model in placing orders : The company is using Economic Order Quantity model in placing the orders.

Hendersons auditors into allowing the traditional method : How much will Sharon make on her stock option if she can pressure Henderson’s auditors into allowing the traditional method.

User Account

All Pages