A two-share portfolio held by an institutional investor has the following information: Years (t) ABC return (%) XYZ return (%) -4 6.6 24.5 -3 5.6 -5.9 -2 -9.0 19.9 -1 12.6 -7.8 0 14.0 14.8   Use the above information to answer the following questions: 4.a. ) Based on expected return alone, which of the two stocks is preferable? 4.b. Based on standard deviation alone which of the two stocks is preferable? 4.c. Compute the return of the portfolio

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 6P
icon
Related questions
Question
  1. A two-share portfolio held by an institutional investor has the following information:

Years (t)

ABC return (%)

XYZ return (%)

-4

6.6

24.5

-3

5.6

-5.9

-2

-9.0

19.9

-1

12.6

-7.8

0

14.0

14.8

 

Use the above information to answer the following questions:

4.a. ) Based on expected return alone, which of the two stocks is preferable?

4.b. Based on standard deviation alone which of the two stocks is preferable?

4.c. Compute the return of the portfolio

4.d. Compute the standard deviation of the portfolio if the weight of Stock XYZ is 20%

4.e. In your view, is the combination of Stock ABC and Stock XYZ good for diversification?

 

Expert Solution
steps

Step by step

Solved in 3 steps with 2 images

Blurred answer
Knowledge Booster
Investment in Stocks
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT