Consider the following expected returns, volatilities, and correlations: Stock Expected Return Standard Deviation Correlation with Duke Energy Correlation with Microsoft Correlation with Wal-Mart Duke Energy 14% 6% 1.0 -1.0 0.0 Microsoft 44% 24% -1.0 1.0 0.7 Wal-Mart 23% 14% 0.0 0.7 1.0 7) The volatility of a portfolio that is equally invested in Duke Energy and Microsoft is closest to: A) 8% B) 9% C) 11% D) 6% Answer: B Explanation: B) Var(Rp) = x12Var(R1) +x22Var(R2) + 2X1X2Corr(R1,R2)SD1SD2 = 0.52(0.06)2+ 0.52(0.24)2+ 2(0.5)(0.5)(-1)(0.06)(0.24) = 0.0081 stdev= = 0.09 8) The expected return of a portfolio that is equally invested in Duke Energy and Microsoft is closest to: 9) A stock market comprises 5000 shares of stock A and 2000 shares of stock B. Assume the share prices for stocks A and B are $20 and $35, respectively. What is the capitalization of the market portfolio? This study resource wasshared via CourseHero.com

Thus, 5000 × 20 + 2000 × 35 = $170,000. 10) You expect General Motors (GM) to have a beta of 1.3 over the next year and the beta of Exxon Mobil (XOM) to be 0.9 over the next year. Also, you expect the volatility of General Motors to be 40% and that of Exxon Mobil to be 30% over the next year. Which stock has more systematic risk? Which stock has more total risk?

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- Summer '19
- Capital Asset Pricing Model, portfolio value