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    The Ex-Ante Estimate of Expected Return From A Stock A Is Given Below

    Uploaded by

    Shaoli Mofazzal
    The document provides 9 questions calculating portfolio expected returns, risks, weights, and selections based on investor risk preferences. It includes questions calculating the expected return and risk of individual stocks and portfolios consisting of multiple stocks, as well as determining the weights needed in different securities or portfolios to achieve desired expected returns or minimize risk. The questions cover concepts such as expected return, risk, correlation, covariance, standard deviation, and how an investor's risk aversion impacts their preferred investment selection.

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    The Ex-Ante Estimate of Expected Return From A Stock A Is Given Below

    Uploaded by

    Shaoli Mofazzal
    45 views2 pages
    The document provides 9 questions calculating portfolio expected returns, risks, weights, and selections based on investor risk preferences. It includes questions calculating the expected return and risk of individual stocks and portfolios consisting of multiple stocks, as well as determining the weights needed in different securities or portfolios to achieve desired expected returns or minimize risk. The questions cover concepts such as expected return, risk, correlation, covariance, standard deviation, and how an investor's risk aversion impacts their preferred investment selection.

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    The document provides 9 questions calculating portfolio expected returns, risks, weights, and selections based on investor risk preferences. It includes questions calculating the expected return and risk of individual stocks and portfolios consisting of multiple stocks, as well as determining the weights needed in different securities or portfolios to achieve desired expected returns or minimize risk. The questions cover concepts such as expected return, risk, correlation, covariance, standard deviation, and how an investor's risk aversion impacts their preferred investment selection.

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    45 views2 pages

    The Ex-Ante Estimate of Expected Return From A Stock A Is Given Below

    Uploaded by

    Shaoli Mofazzal
    The document provides 9 questions calculating portfolio expected returns, risks, weights, and selections based on investor risk preferences. It includes questions calculating the expected return and risk of individual stocks and portfolios consisting of multiple stocks, as well as determining the weights needed in different securities or portfolios to achieve desired expected returns or minimize risk. The questions cover concepts such as expected return, risk, correlation, covariance, standard deviation, and how an investor's risk aversion impacts their preferred investment selection.

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    of 2

    1.

    The ex-ante estimate of expected return from a stock A is given below:

    State of the Economy Probability of Occurrence Possible Returns on Stock A in


    that State
    Economic Expansion 25.0% 30%
    Normal Economy 50.0% 12%
    Recession 25.0% -25%
    a) Calculate the expected return of Stock A.
    b) Calculate the risk associated with this expected return.

    2. The expected return and risk of two stocks are given below:

    Stock Expected return Risk


    Coca-Cola 12.12% 21.58%
    Duke Energy 15.16% 25.97%
    Correlation Co-efficient 0.29
    a) Calculate the expected return and risk of the portfolio with equal amount invested in each stock.

    3. The expected return and risk of two stocks are given below:

    Stock Expected return Risk


    Coca-Cola 12.12% 21.58%
    Duke Energy 15.16% 25.97%
    Correlation Co-efficient -1
    a) Calculate the expected return and risk of the portfolio with equal amount invested in each stock.
    b) If you want to make portfolio risk equal to zero what would be the weight invested in each stock and
    what would be the expected return, then?

    4. A portfolio has an expected return of 20% and standard deviation of 30%. T-Bills offer a safe rate of
    return of 7%. Would an investor with A = 4 prefer to invest in T-Bills or risky portfolio? What if A = 2?

    5. An investor invests 40% of his wealth in a risky asset with an expected rate of return of 0.17 and a
    variance of 0.08 and 60% in a T-bill that pays 4.5%. What would be his portfolio's expected return and standard
    deviation?

    6. You invest $100 in a risky asset with an expected rate of return of 0.12 and a standard deviation of 0.15
    and a T-bill with a rate of return of 0.05. What percentages of your money must be invested in the risky asset
    and the risk-free asset, respectively, to form a portfolio with an expected return of 0.09? 

    7. You are considering investing $1,000 in a T-bill that pays 0.05 and a risky portfolio, P, constructed
    with two risky securities, X and Y. The weights of X and Y in P are 0.60 and 0.40, respectively. X has an
    expected rate of return of 0.14 and variance of 0.01, and Y has an expected rate of return of 0.10 and a variance
    of 0.0081. If you want to form a portfolio with an expected rate of return of 0.11, what percentages of your
    money must you invest in the T-bill and P, respectively? 

    8. Consider two perfectly negatively correlated risky securities A and B. A has an expected rate of return
    of 10% and a standard deviation of 16%. B has an expected rate of return of 8% and a standard deviation of
    12%. What will be the weights of A and B in the global minimum variance portfolio?

    5.  Security X has expected return of 14% and standard deviation of 22%. Security Y has expected return
    of 16% and standard deviation of 28%. If the two securities have a correlation coefficient of 0.8, what is their
    covariance? 
    9. Based on the information below, which investment would the investors select with A = 2 and A = 4? 

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