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Stocks Mean Return Variance of Return X 2 2.25 Y 4 36 Z 6 4 Stocks...

Stocks

Mean Return

Variance of Return

X

2

2.25

Y

4

36

Z

6

4

Stocks

Mean Return

Variance of Return

X

2

2.25

Y

4

36

Z

6

4

Correlations

X and Y

X and Z

Z and Y

0.5

0.2

0.9

Covariance with the market

X

0.2

Y

0.5

Z

0.7


Market Variance

0.5

Other Betas

HML

SMB

X

0.3

1

Y

0.4

1.2

Z

0.5

0.7

Risk Premiums

RF

2%

Market

7%

HML

3%

SMB

9%


Solve the following questions using the data given above.

2-) Portfolio 2 : X (30%) - Y (40%) - Z (30%)

a-) Find the Standard Deviation and the Expected Return of the portfolio

Fill the following variance covariance matrix (just the numbers up to 2 decimal points)

X

Y

Z

X

Y

Z

portfolio

stdev

mean

b-) Find the market, HML, and SMB betas of the portfolio.

market

HML

SMB

BETA

c-) What are the required rate of returns of the portfolio based on CAPM and FF3 factor models, respectively.

CAPM

FFF3

return
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