BD_SM_c11

BD_SM_c11 - Chapter 11 Optimal Portfolio Choice 11-1. a....

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Chapter 11 Optimal Portfolio Choice 11-1. a. Let i n be the number of share in stock I, then G 200,000 0.5 n4 , 0 0 0 25 × == M 200,000 0.25 n6 2 5 80 × V 200,000 0.25 n2 5 , 0 0 0 2 × The new value of the portfolio is GM V v p3 0 n 6 0 n 3 =++ \$232,500 = b. Return 232,500 1 16.25% 200,000 =− = c. The portfolio weight are the fraction of value invested in each stock G M V n3 0 GoldFinger: 51.61% 232,500 0 Moosehead: 16.13% 232,500 Venture: 32.26% 232,500 × = × = × = 11-2. Both calculations of expected return of a portfolio give the same answer. 11-3. If the price of one stock goes up, the other stock price always goes up as well.

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100 Berk/DeMarzo Corporate Finance 11-4. a. () ( ) ( ) ( ) ( ) ( ) A B 10 20 5 5 2 9 R3 . 5 % 6 21 30 7 3 8 25 R 6 12% 0.1 0.035 0.21 0.4 0.2 0.035 0.3 0.12 0.05 0.035 0.07 0.12 1 Covariance 0.05 0.035 0.03 0.12 5 0.02 0.035 0.08 0.12 0.09 0.035 0.25 0.12 0. −+ +−++ == ++ + = = −− − + + + = + + = ⎡⎤ ⎢⎥ ⎣⎦ 00794 b. ( ) ( ) ( ) ( ) 2 22 2 0.1 0.035 0 . 20 . 0 8 0 . 0 50 . 0 3 5 1 Variance of A 5 0.05 0.035 0.02 0.035 0.09 0.035 0.01123 0.21 0.12 0.3 0.12 1 Variance of B 0.07 0.12 0.03 0.12 5 0.08 0.1 + −+ + = + +− = =− + + ( ) 2 0.25 0.12 0.02448 = c. Covariance Correlation Variance of A Variance of B 0.479 = = 11-5. a. The mean for KO is 2.02%; the mean for XOM is 1.17%.
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This note was uploaded on 10/08/2010 for the course ENGIN 120 taught by Professor Ilan during the Spring '08 term at Berkeley.

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BD_SM_c11 - Chapter 11 Optimal Portfolio Choice 11-1. a....

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