What are the mean and variance of the portfolio value

Assignment Help Business Economics

Reference no: EM13892038

Financial Managers, Inc., buys and sells a large number of stocks routinely for the various accounts that it manages. Portfolio manager Andrea Colson has asked for your assistance in the analysis of the Johnson Fund. A portion of this portfolio consists of 10 shares of stock A and 8 shares of stock B. The price of A has a mean of 10 and a variance of 16, while the price of B has a mean of 12 and a variance of 9. The correlation between prices is 0.3.

a. What are the mean and variance of the portfolio value?

b. Andrea has been asked to reduce the variance (risk) of the portfolio. She offers to trade the 10 shares of stock A and receives two offers, from which she can select one: 10 shares of stock 1 with a mean price of 10, a variance of 25, and a correlation with the price of stock B equal to -0.2; or 10 shares of stock 2 with a mean price of 10, a variance of 9, and a correlation with the price of stock B equal to +0.5. Which offer should she select?

Reference no: EM13892038

Questions Cloud

Supply of cigarettes is elastic but not perfectly elastic : The demand for cigarettes is price inelastic, but not perfectly inelastic. The supply of cigarettes is elastic, but not perfectly elastic. If there were no price controls or other complicating regulations, what would a model of supply and demand ther..

Small manufacturing facility that produces widgets : Suppose you are hired to manage a small manufacturing facility that produces Widgets. You know that you are operating in a monopolistically competitive market, that is, you are a small part of a large market with many competitors in this market. From..

When the production function and the revenue are function : When the production function and the revenue are function the same in a model? (Answer is related to an assumption made about the price of the consumption good)

Compute the mean and variance of the portfolio : Shirley Johnson, portfolio manager, has asked you to analyze a newly acquired portfolio to determine its mean value and variability. The portfolio consists of 50 shares of Xylophone Music and 40 shares of Yankee Workshop. Compute the mean and varianc..

What are the mean and variance of the portfolio value : Financial Managers, Inc., buys and sells a large number of stocks routinely for the various accounts that it manages. Portfolio manager Andrea Colson has asked for your assistance in the analysis of the Johnson Fund. What are the mean and variance of..

Find the mean and variance of the random variable : A random variable X is normally distributed with a mean of 100 and a variance of 500, and a random variable Y is normally distributed with a mean of 200 and a variance of 400. The random variables have a correlation coefficient equal to -0.5. Find th..

What proportion of corporations was rate of return negative : An investment portfolio contains stocks of a large number of corporations. Over the last year the rates of return on these corporate stocks followed a normal distribution with mean 12.2% and standard deviation 7.2%. For what proportion of these corpo..

Amounts of money spent on clothing : It is known that amounts of money spent on clothing in a year by students on a particular campus follow a normal distribution with a mean of $380 and a standard deviation of $50. What is the probability that a randomly chosen student will spend less ..

Measured by forgone benefits of the next-best alternative : Opportunity cost is associated with choosing a particular decision that is measured by the forgone benefits of the next-best alternative. What example would you pose to explain this?

User Account

All Pages