HomeworkLib
Question

You are going to invest in Asset J and Asset S. Asset J has an expected...

You are going to invest in Asset J and Asset S. Asset J has an expected return of 13 percent and a standard deviation of 54 percent. Asset S has an expected return of 10 percent and a standard deviation of 19 percent. The correlation between the two assets is 0.50. What are the standard deviation and expected return of the minimum variance portfolio? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1
Asset J Asset S
Return 13% 10%
Standard deviation σ 0.54 0.19
Variance σ^2 0.2916 0.0361
Corr 0.5

Given this data, calculate the variance and the standard deviation of a portfolio consisting of asset J and asset S in the ratio of 1:1.

Portfolio variance = (WJ^2*VarJ) + (WS^2*VarS) + (2WJWSStDevJStDevS.corr)

Portfolio standard deviation = portfolio variance^0.5

Once this data is in place, solve using excel Solver to get a minimum value of variance by changing the weights of assets.

The minimum variance portfolio is:

Asset J Asset S
Weight 0.00% 100.00%
Expected return 10.00%
Variance 0.0361
Standard deviation 19.00%
0 0
Add a comment
Know the answer?
Add Answer to:
You are going to invest in Asset J and Asset S. Asset J has an expected...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Asset K has an expected return of 10 percent and a standard deviation of 28 percent....

    Asset K has an expected return of 10 percent and a standard deviation of 28 percent. Asset L has an expected return of 7 percent and a standard deviation of 18 percent. The correlation between the assets is 0.40. What are the expected return and standard deviation of the minimum variance portfolio? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

  • Asset K has an expected return of 16 percent and a standard deviation of 35 percent....

    Asset K has an expected return of 16 percent and a standard deviation of 35 percent. Asset L has an expected return of 10 percent and a standard deviation of 16 percent. The correlation between the assets is 0.58. What are the expected return and standard deviation of the minimum variance portfolio? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Expected return Standard deviation

  • A portfolio that combines the risk-free asset and the market portfolio has an expected return of...

    A portfolio that combines the risk-free asset and the market portfolio has an expected return of 7.7 percent and a standard deviation of 10.7 percent. The risk-free rate is 4.7 percent, and the expected return on the market portfolio is 12.7 percent. Assume the capital asset pricing model holds. What expected rate of return would a security earn if it had a .52 correlation with the market portfolio and a standard deviation of 55.7 percent? (Do not round intermediate calculations....

  • Asset K has an expected return of 10 percent and a standard deviation of 28 percent....

    Asset K has an expected return of 10 percent and a standard deviation of 28 percent. Asset L has an expected return of 7 percent and a standard deviation of 18 percent. The correlation between the assets is 0.40. What are the expected return and standard deviation of the minimum variance portfolio?

  • Consider two stocks, Stock D, with an expected return of 20 percent and a standard deviation...

    Consider two stocks, Stock D, with an expected return of 20 percent and a standard deviation of 36 percent, and Stock I, an international company, with an expected return of 6 percent and a standard deviation of 16 percent. The correlation between the two stocks is –0.01. What are the expected return and standard deviation of the minimum variance portfolio? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Expected Return? Standard deviation?

  • You have a three-stock portfolio. Stock A has an expected return of 13 percent and a...

    You have a three-stock portfolio. Stock A has an expected return of 13 percent and a standard deviation of 38 percent, Stock B has an expected return of 17 percent and a standard deviation of 43 percent, and Stock C has an expected return of 17 percent and a standard deviation of 43 percent. The correlation between Stocks A and B is 0.30, between Stocks A and C is 0.20, and between Stocks B and C is 0.05. Your portfolio...

  • Ebenezer Scrooge has invested 40% of his money in share A and the remainder in share...

    Ebenezer Scrooge has invested 40% of his money in share A and the remainder in share B. He assesses their prospects as follows: A 18 Expected return (%) Standard deviation (3) Correlation between returns 21 0.5 a. What are the expected return and standard deviation of returns on his portfolio? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) 19.80 % Expected return Standard deviation b. How would your answer change if the...

  • Suppose there are three assets: A, B, and C. Asset A’s expected return and standard deviation are 1 percent and 1 percent. Asset B has the same expected return and standard deviation as Asset A. However, the correlation coefficient of Assets A and B is −0

    Suppose there are three assets: A, B, and C. Asset A’s expected return and standard deviation are 1 percent and 1 percent. Asset B has the same expected return and standard deviation as Asset A. However, the correlation coefficient of Assets A and B is −0.25. Asset C’s return is independent of the other two assets. The expected return and standard deviation of Asset C are 0.5 percent and 1 percent. (a) Find a portfolio of the three assets that...

  • You are constructing a portfolio of two assets, Asset A and Asset B. The expected returns of the ...

    You are constructing a portfolio of two assets, Asset A and Asset B. The expected returns of the assets are 10 percent and 16 percent, respectively. The standard deviations of the assets are 37 percent and 45 percent, respectively. The correlation between the two assets is 0.57 and the risk-free rate is 4.1 percent. What is the optimal Sharpe ratio in a portfolio of the two assets? What is the smallest expected loss for this portfolio over the coming year...

  • Refer to the table below: 3 Doors, Inc. 215 Down Co Expected return, E(R) Standard deviation,...

    Refer to the table below: 3 Doors, Inc. 215 Down Co Expected return, E(R) Standard deviation, o Correlation Using the information provided on the two stocks in the table above, find the expected return and standard deviation on the minimum variance portfolio. (Do not round Intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Expected return Standard deviation

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT