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

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
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.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

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.

Page1 / 2

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

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online