Chapter_6_DocCam - that minimize portfolio variance State p...

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Chapter 6 Introduction to Portfolio (40 stock/60 bond portfolio introduction) 1 State p Stock Bond Depression 0.05 -37% -9% Mild recession 0.25 -11% 15% Normal growth 0.40 14% 8% Boom 0.30 30% -5% Expected return 10.00% 5.00% Standard deviation 18.63% 8.27%
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Chapter 6 Example on Portfolio 1 a) Using the below table, calculate the expected return and its variance and standard deviation of a portfolio if 45% of the portfolio is invested in security A and 55% is invested in security B. State p A B Depressio n 0.1 -6% 25% Recession 0.2 0% 31% Normal 0.4 9% 22% Boom 0.3 20% -15% Expected return 9.00% 13.00% Standard deviation 8.66% 18.62% 2
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Chapter 6 Example on Portfolio 1 (continued) Using the information on slide 9, calculate the weights of securities A and B for a portfolio with an expected return of 10%. What is the standard deviation of this portfolio? State p A B Depressio n 0.1 -6% 25% Recession 0.2 0% 31% Normal 0.4 9% 22% Boom 0.3 20% -15% Expected return 9.00% 13.00% Standard deviation 8.66% 18.62% 3
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Chapter 6 Example on minimum variance portfolio Using the below information, calculate the weights of securities A and B
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Unformatted text preview: that minimize portfolio variance. State p A B Depressio n 0.1-6% 25% Recession 0.2 0% 31% Normal 0.4 9% 22% Boom 0.3 20%-15% Expected return 9.00% 13.00% Standard deviaTon 8.66% 18.62% 4 Chapter 6 Example on optimal portfolio Using the below table, (risk free rate = 5%), calculate the weights of securities A and B for the optimal portfolio State p A B Depressio n 0.1-6% 25% Recession 0.2 0% 31% Normal 0.4 9% 22% Boom 0.3 20%-15% Expected return 9.00% 13.00% Standard deviaTon 8.66% 18.62% 5 Chapter 6 Example on portfolio efficiency Using the below information, is a $100,000 portfolio with $30,000 invested in security A and the remainder invested in security B efficient if the expected return of the market portfolio is 12% and its standard deviation is 8%? State p A B Depressio n 0.1-6% 25% Recession 0.2 0% 31% Normal 0.4 9% 22% Boom 0.3 20%-15% Expected return 9.00% 13.00% Standard deviaTon 8.66% 18.62% 6...
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