unit5-corporatefinancehw.elizabethingram

# unit5-corporatefinancehw.elizabethingram - Chapter 8 3)...

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Chapter 8 3) Mark Harrywitz proposes to invest in two different stocks, X and Y. He expects a return of 12% from X and 8% from Y. The standard deviation of returns is 20% for X and 10% for Y. The correlation coefficient between the returns is .2. a. Compute the expected return and the standard deviation of the following portfolios: Portfolio Percentage in X Percentage in Y Expected return Variance Standard Deviation 1 50 50 10% 1.5% 12% 2 25 75 9% 1.0% 10% 3 75 25 11% 2.5% 16% Expected return = % X * 12% + % Y * 8% b. Sketch the set of portfolios composed of X and Y on a graph with E(r) on the vertical axis and the portfolio standard deviation on the horizontal axis. The set of portfolios (plotted with five points, i.e., the three specified plus the portfolios with weights of {1,0} and {0,1}) is represented by the curved line. C) Suppose that Mr. Harrywitz can also borrow or lend at an interest rate of 5 percent. Show on your sketch how this alters his opportunities.

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## This note was uploaded on 02/13/2012 for the course CORPORATE Mt480 taught by Professor Michealessary during the Spring '11 term at Kaplan University.

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unit5-corporatefinancehw.elizabethingram - Chapter 8 3)...

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