What is the no-arbitrage one year forward rate

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Reference no: EM132029435

1. Stock ABC has an expected return of 10% and a standard deviation of returns of 5%. Stock XYZ has an expected return of 12% and a standard deviation of returns of 7%. You would like to invest $3000 in stock ABC and $2000 in stock XYZ. The correlation between the two stocks is .5. The expected market return is 11% and the risk free rate is 4%. Which of the following is false?

1. The expected return of the portfolio is 10.8%

2. The standard deviation of portfolio returns is 5.02%.

3. The beta of the portfolio is 1.3.

4. Based on the mean-standard deviation rule, we cannot choose between stock XYZ to stock ABC.

2. Suppose you observe a spot exchange rate of $1.0500/€. If interest rates are 5% APR in the U.S.and 3% APR in the euro zone, what is the no-arbitrage 1-year forward rate?

A)€1.0704/$ B) $1.0300/€ C) $1.0704/€ D) €1.0300/$

Reference no: EM132029435

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