Reference no: EM133042283
Question - Your eccentric Aunt Claudia has left you $50,000 in BP shares plus $50,000 cash. Unfortunately her will requires that the BP stock not be sold for one year and the $50,000 cash must be entirely invested in one of the stocks shown below. The table provides estimates of the standard deviations of returns for each stock and the correlation between the returns of each pair of stocks.
|
|
BHP
|
BP
|
Fiat
|
Heineken
|
Nestle
|
Sony
|
TAM
|
Tata Motors
|
|
BHP
|
1.00
|
0.33
|
0.36
|
0.43
|
0.18
|
0.43
|
0.16
|
0.36
|
|
BP
|
0.33
|
1.00
|
0.36
|
0.18
|
0.16
|
0.30
|
-0.05
|
0.19
|
|
Fiat
|
0.36
|
0.36
|
1.00
|
0.29
|
0.30
|
0.22
|
-0.10
|
0.27
|
|
Heineken
|
0.43
|
0.18
|
0.29
|
1.00
|
0.35
|
0.53
|
-0.09
|
0.43
|
|
Nestle
|
0.18
|
0.16
|
0.30
|
0.35
|
1.00
|
0.12
|
-0.12
|
0.14
|
|
Sony
|
0.43
|
0.30
|
0.22
|
0.53
|
0.12
|
1.00
|
-0.11
|
0.26
|
|
TAM
|
0.16
|
-0.05
|
-0.10
|
-0.09
|
-0.12
|
-0.11
|
1.00
|
0.11
|
|
Tata Motors
|
0.36
|
0.19
|
0.27
|
0.43
|
0.14
|
0.26
|
0.11
|
1.00
|
|
Standard deviation
|
29.00%
|
40.80
|
51.60
|
27.30
|
21.00
|
41.50
|
49.40
|
51.50
|
Required -
a. Calculate the portfolio variance for seven different portfolios.
Portfolio Variance:
BHP _________
Fiat _________
Heineken_________
Nestle _________
Sony _________
TAM _________
Tata Motors_________
b. What is the safest attainable portfolio under these restrictions?
British Petroleum and BHP
British Petroleum and Fiat
British Petroleum and Heineken
British Petroleum and Nestle
British Petroleum and Sony
British Petroleum and TAM
British Petroleum and Tata Motors