Homework Answers
To design a portfolio that mimics the FTSE 100, you could invest in the 30 largest stocks so that the sector weights of the portfolio are identical to the sector weights of the FTSE 100.
This is preferable to investing in all 100 stocks because the diversification benefit can be achieved by investing in only 30 stocks instead of 100 stocks. By investing in only 30 stocks, portfolio turnover and churn can be reduced, resulting in lower transaction costs and decreasing tracking error.
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1.(5 marks) Describe how you might design a portfolio of the 30 largest stocks that mimic...
Problem #5 (12 Marks) You have a portfolio with a standard deviation of 30% and an...
Problem #5 (12 Marks) You have a portfolio with a standard deviation of 30% and an expected return of 18%. You are considering adding one of the two stocks in the table below to your portfolio. After adding the stock, you will have 20% of your money in the new stock and 80% of your money in your existing portfolio. A) Calculate the risk and return of a new portfolio with 20% invested in stock A and 80% in your...
Two stocks under evaluation have the following probability distribution for their rate of returns. Probability 30%...
Two stocks under evaluation have the following probability distribution for their rate of returns. Probability 30% 20% 50% Rate of Return Stock A Stock B 18% 10% -2% 5% 10% 0% Table Q1 (a) Explain the expected return for each of the stocks by giving the value. (3 marks) (b) Explain the standard deviation for the return of each of the stocks by giving the value. (6 marks) (c) Explain the correlation coefficient between the returns of the two stocks...
Typical finance textbooks purport that when you construct a diversified portfolio of about 30 stocks, you...
Typical finance textbooks purport that when you construct a diversified portfolio of about 30 stocks, you will eliminate all the unsystematic risk in the portfolio. Go to Motley Fool’s website and explain their position about this number. What do they recommend as the optimal number of stocks to hold in a portfolio? What is their argument for this number? If you have your own opinion and/or experience, please share it.
Part II Question 1: You invest in a portfolio of 5 stocks with an equal investment...
Part II Question 1: You invest in a portfolio of 5 stocks with an equal investment in each one. The betas of the 5 stocks are as follows: .8, -1.3, .95, 1.2 and 1.4. The risk-free return is 3% and the market return is 7%. Compute the beta of the portfolio. Compute the required return of the portfolio. Question 2: You are given the following probability distribution for a stock: Probability Outcome .5 -6% .5 18% A) Compute the...
You portfolio consisting of 5 stocks. There are 9 available stocks to choose from. How many...
You portfolio consisting of 5 stocks. There are 9 available stocks to choose from. How many different portfolios are possible?
1. Diversification cannot reduce the portfolio risk if you invest different stocks in the same industry. ...
1. Diversification cannot reduce the portfolio risk if you invest different stocks in the same industry. Why? Explain. Diversification reduces the portfolio risk if you invest different stocks in the different industries. Why? Explain. 2. If you would like to form your stock investment portfolio, (1) how many stocks would you include in the portfolio, and (2) what are these stocks (companies) in the portfolio. Explain why you choose these companies.
Typical finance textbooks purport that when you construct a diversified portfolio of about 30 stocks, you...
Typical finance textbooks purport that when you construct a diversified portfolio of about 30 stocks, you will eliminate all the unsystematic risk in the portfolio. Go to Motley Fool's website and explain their position about this number. What do they recommend as the optimal number of stocles to hold in a portfolio? What is their argument for this number? If you have your own opinion and/or experience, please share it.
6. Consider the following information for Stocks 1 and 2: Expected Standard Stock Return Deviation 1...
6. Consider the following information for Stocks 1 and 2: Expected Standard Stock Return Deviation 1 20% 40% 2 12% 20% NE a. The correlation between the returns of these two stocks is 0.3. How will you divide your money between Stocks 1 and 2 if your aim is to achieve a portfolio with an expected return of 18% p.a.? That is, what are the weights assigned to each stock? Also take note of the risk (i.e., standard deviation) of...
31-35) Briefly describe how you might design a radio pharmacy in a hospital environment so that...
31-35) Briefly describe how you might design a radio pharmacy in a hospital environment so that it meets or exceeds current regulatory requirements, provides for the ALARA concept as well as minimizes radiation exposure to both patients and clinicians. 36-40) What is the "Blood Brain Barrier" and what does this mean for "diffusible" and "non-diffusible" radiopharmaceuticals for brain imaging? Give at least one example of a diffusible and non-diffusible radiopharmaceutical in your answer. Describe how you might design a new...
Problem 3 - Optimal Risky Portfolios (10 marks] The correlation coefficients between different stocks are provided...
Problem 3 - Optimal Risky Portfolios (10 marks] The correlation coefficients between different stocks are provided in the following table: HPQ MSFT KO DELL HPQ MSFT DELL 1 0.85 0.60 0.45 1 0.75 0.35 1 0.30 KO 1 Assume that investors are risk averse and that all stocks have an expected return of 5% and a standard deviation of 12%. Use this information to answer the following questions: a) Jane is one of your clients and she is fully invested...
Problem #5 (12 Marks) You have a portfolio with a standard deviation of 30% and an expected return of 18%. You are considering adding one of the two stocks in the table below to your portfolio. After adding the stock, you will have 20% of your money in the new stock and 80% of your money in your existing portfolio. A) Calculate the risk and return of a new portfolio with 20% invested in stock A and 80% in your...
Two stocks under evaluation have the following probability distribution for their rate of returns. Probability 30% 20% 50% Rate of Return Stock A Stock B 18% 10% -2% 5% 10% 0% Table Q1 (a) Explain the expected return for each of the stocks by giving the value. (3 marks) (b) Explain the standard deviation for the return of each of the stocks by giving the value. (6 marks) (c) Explain the correlation coefficient between the returns of the two stocks...
Typical finance textbooks purport that when you construct a diversified portfolio of about 30 stocks, you will eliminate all the unsystematic risk in the portfolio. Go to Motley Fool's website and explain their position about this number. What do they recommend as the optimal number of stocles to hold in a portfolio? What is their argument for this number? If you have your own opinion and/or experience, please share it.
6. Consider the following information for Stocks 1 and 2: Expected Standard Stock Return Deviation 1 20% 40% 2 12% 20% NE a. The correlation between the returns of these two stocks is 0.3. How will you divide your money between Stocks 1 and 2 if your aim is to achieve a portfolio with an expected return of 18% p.a.? That is, what are the weights assigned to each stock? Also take note of the risk (i.e., standard deviation) of...
31-35) Briefly describe how you might design a radio pharmacy in a hospital environment so that it meets or exceeds current regulatory requirements, provides for the ALARA concept as well as minimizes radiation exposure to both patients and clinicians. 36-40) What is the "Blood Brain Barrier" and what does this mean for "diffusible" and "non-diffusible" radiopharmaceuticals for brain imaging? Give at least one example of a diffusible and non-diffusible radiopharmaceutical in your answer. Describe how you might design a new...
Problem 3 - Optimal Risky Portfolios (10 marks] The correlation coefficients between different stocks are provided in the following table: HPQ MSFT KO DELL HPQ MSFT DELL 1 0.85 0.60 0.45 1 0.75 0.35 1 0.30 KO 1 Assume that investors are risk averse and that all stocks have an expected return of 5% and a standard deviation of 12%. Use this information to answer the following questions: a) Jane is one of your clients and she is fully invested...
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