Toyota Corp's stock is $32 per share. Its expected return is 25% and variance is 15%. Honda Corp's stock is $20 per share. Its expected return is 20% and variance is 7%. Benz Corp's stock is $42 per share. Its expected return is 11% and variance 7%. The covariance between Toyota and Honda is 0.03. What would be the standard deviation of a portfolio consisting of 50% Toyota and 50% ?

Toyota Corp's stock is $32 per share. Its expected return is 25% and variance is 15%. Honda Corp's stock is $20 per share. Its expected return is 20% and variance is 7%. Benz Corp's stock is $42 per share. Its expected return is 11% and variance 7%. The covariance between Toyota and Honda is 0.03. What would be the standard deviation of a portfolio consisting of 50% Toyota and 50% ?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 12P

See similar textbooks

Similar questions

Suppose an investor wants to invest either in the common stock of Square Corporation or Beximco Corporation. Square Corporation offers investors an expected rate of return equal to 39%, with a standard deviation of 20%. Square offers a higher expected return than Beximco Corporation (the expected rate of return equals 31%, and the standard deviation equals 18%), but it is also riskier. The variance for Square Corporation is 400, and Bexlmco Corporation is 324. Concerning both risk and return, which corporation has lower risk per unit of return, and which investment would be the better investment? Why? Show calculation and explain with necessary numerical data.
Consider two stocks, Stock D, with an expected return of 13 percent and a standard deviation of 30 percent, and Stock I, an international company, with an expected return of 16 percent and a standard deviation of 41 percent. The correlation between the two stocks is 0.4. What is the weight of stock D in the minimum variance portfolio?
The expected rate of return for the stock of Cornhusker Enterprises is 20 percent, with a standard deviation of 15 percent. The expected rate of return for the stock of Mustang Associates is 10 percent, with a standard deviation of 9 percent. a. Which stock would you consider to be riskier? Why? b. If you knew that the beta coefficient of Cornhusker stock is 1.5 and the beta of Mustang is 0.9, how would your answer to Part a change?
Suppose that the standard deviation of returns from a typical share is about 0.43 (or 43%) a year. The correlation between the returns of each pair of shares is about 0.3. a. Calculate the variance and standard deviation of the returns on a portfolio that has equal investments in 2 shares, 3 shares, and so on, up to 10 shares. (Use decimal values, not percents, in your calculations. Do not round intermediate calculations. Round the "Variance" answers to 6 decimal places. Round the "Standard Deviation" answers to 3 decimal places.) b. How large is the underlying market variance that cannot be diversified away? (Do not round intermediate calculations. Round your answer to 3 decimal places.) c. Now assume that the correlation between each pair of stocks is zero. Calculate the variance and standard deviation of the returns on a portfolio that has equal investments in 2 shares, 3 shares, and so on, up to 10 shares. (Use decimal values, not percents, in your calculations. Do not…
Consider two stocks, Stock D, with an expected return of 13 percent and a standard deviation of 27 percent, and Stock I, an international company, with an expected return of 16 percent and a standard deviation of 44 percent. The correlation between the two stocks is -0.6. What is the weight of stock D in the minimum variance portfolio? (Do not round intermediate calculations. Round your answers to 4 decimal places.)
Florida Company (FC) and Minnesota Company (MC) are both service companies. Their stock returns for the past three years were as follows: FC: −5 percent, 15 percent, 20 percent; MC: 8 percent, 8 percent, 20 percent. What is the variance of a portfolio with 50 percent of the funds invested in FC and 50 percent in MC? (You can use population variances, i.e., ignore the correction for the loss of a degree of freedom)....
Your portfolio invests in the stock of two companies. Company A’s stock has a variance of 0.25, while Company B’s stock has a standard deviation of 0.30. The correlation between the two stocks is 0.40. If 30% of your portfolio is invested in Company A, and 70% in Company B, what is the standard deviation of your portfolio? A. 28.74% B. 24.96% C. 30.30% D. 28.50%
The stock of Tristar Bank will have a loss of 10.8 percent in a slow economy, a return of 10.6 percent in a normal economy, and a return of 24.5 percent in a fast-growing economy. There is 30 percent probability of a slow economy, 39 percent probability of a normal economy, and 31 percent probability of a fast-growing economy. What is the variance of the stock's returns?
The stock of Jones Trucking is expected to return 16 percent annually with a standard deviation of 7 percent. The stock of Bush Steel Mills is expected to return 21 percent annually with a standard deviation of 13 percent. The correlation between the returns from the two securities has been estimated to be +0.4. The beta of the Jones stock is 1.1, and the beta of the Bush stock is 1.4. The risk-free rate of return is expected to be 6 percent, and the expected return on the market portfolio is 16 percent. The current dividend for Jones is $5. The current dividend for Bush is $7. What is the expected return from a portfolio containing the two securities if 30 percent of your wealth is invested in Jones and 70 percent is invested in Bush? Round your answer to one decimal place. % What is the expected standard deviation of the portfolio of the two stocks? Round your answer to two decimal places. % Which stock is the better buy in the current market? Round your answers to one decimal…
The stock of Jones Trucking is expected to return 16 percent annually with a standard deviation of 7 percent. The stock of Bush Steel Mills is expected to return 21 percent annually with a standard deviation of 13 percent. The correlation between the returns from the two securities has been estimated to be +0.4. The beta of the Jones stock is 1.1, and the beta of the Bush stock is 1.4. The risk-free rate of return is expected to be 6 percent, and the expected return on the market portfolio is 16 percent. The current dividend for Jones is $5. The current dividend for Bush is $7. What is the expected return from a portfolio containing the two securities if 30 percent of your wealth is invested in Jones and 70 percent is invested in Bush? Round your answer to one decimal place. % What is the expected standard deviation of the portfolio of the two stocks? Round your answer to two decimal places. % Which stock is the better buy in the current market? Round your answers to one decimal…
There are only shares of A and B companies in the market. Currently, the market value of A and B shares is $200 million and $300 million, respectively. In addition, the risk-free interest rate (Rf) is 5 per cent. The probability and rate of return for the future state of the two entities are given as follows: (Value values with a decimal place or higher to the fifth decimal place.) 1) Obtain the expected return and variance of Entity A and B, respectively. 2) When forming a market portfolio with two shares, obtain the expected return rate and variance and standard deviation of the market portfolio. 3) Calculate the beta of share A, and calculate the required yield of share A. state probability Ra Rb 1 0.3 0.30 0.20 2 0.4 0.15 -0.10 3 0.3 0.05 0.10
Consider the following information on a portfolio of three stocks: State of Probability of Economy State of Economy Boom .12 Normal Bust .33 Stock A Rate of Return .07 .16 Stock B Rate of Return .32 .27 -.26 Stock Rate of Return .45 .25 -.35 a. If your portfolio is invested 40 percent each in A and B and 20 percent in C, what is the portfolio's expected return, the variance, and the standard deviation ? Note: Do not round intermediate calculations . Round your variance answer to 5 decimal places, e.g., .16161. Enter your other answers as a percent rounded to 2 decimal places , e.g., 32.16. bIf the expected T-bill rate is 4.5 percent, what is the expected risk premium on the portfolio ? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16 . % a. Expected return Variance Standard deviation % b. Expected risk premium %