FNCE 370v8 Assignment 4-6
accounting teacherFNCE 370v8 Assignment 4-6
The expected returns, return variances, and the correlation between the returns of four securities are shown below.
Security | Expected Return | Variance of Returns | Correlation | |||
A | B | C | D | |||
A | 0.17 | 0.0169 | 1 | 0.4 | 0.7 | 0.2 |
B | 0.13 | 0.0361 | 1 | 0.6 | 0.5 | |
C | 0.09 | 0.0049 | 1 | 0.9 | ||
D | 0.07 | 0.005 | 1 | |||
a. Determine the expected return and variance for a portfolio composed of 25% of security A and 75% of security B.
b. Determine the expected return and variance of a portfolio that contains 78% security A and 22% security B. Is this portfolio superior to that one in (a) above?
c. Calculate the expected return and variance of a portfolio that contains 60% security C and 40% security D.
d. If an investor were to select among the following three portfolios, which one would he or she prefer?
o An equally-weighted portfolio of securities A, B, and C.
o An equally-weighted portfolio of A, B, and D.
o An equally-weighted portfolio of B, C, and D.
e. If a risk-adverse investor desires to hold a portfolio of only two securities and expects a return of 11%, what would you advise the investor to do?
10 years ago
Purchase the answer to view it
fnce_370v8_assignment_4-6.xls
