Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
ESSAY. Write your answer in the space provided or on a separate sheet of paper.
Use the table for the question(s) below.
Consider the following covariances between securities:
Duke Microsoft Wal-Mart
Duke 0.0568 -0.0193 0.0037
Microsoft -0.0193 0.2420 0.1277
Wal-Mart 0.0037 0.1277 0.1413
69)
What is the variance on a portfolio that has $2000 invested in Duke Energy, $3000 invested in Microsoft, and
$5000 invested in Wal-Mart stock?
Use the information for the question(s) below.
You are presently invested in the Luther Fund, a broad based mutual fund that invest in stocks and other securities. The
Luther Fund has an expected return of 14% and a volatility of 20%. Risk-free Treasury bills are currently offering returns of
4%. You are considering adding a precious metals fund to your current portfolio. The metals fund has an expected return of
10% , a volatility of 30%, and a correlation of -.20 with the Luther Fund.
70)
Will adding the precious metals fund improve your portfolio?
Use the table for the question(s) below.
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
71)
Consider a portfolio consisting of only Microsoft and Wal-Mart stock. Calculate the expected return on such a
portfolio when the weight on Microsoft stock is 0%, 25%, 50%, 75%, and 100%
Use the information for the question(s) below.
Suppose that you currently have $250,000 invested in a portfolio with an expected return of 12% and a volatility of 10%. The
efficient (tangent) portfolio has an expected return of 17% and a volatility of 12%. The risk-free rate of interest is 5%.
72)
Suppose that you want to maximize your expected return without increasing your risk. How can you achieve
this goal? Without increasing your risk, what is the maximum expected return you can expect?
Use the table for the question(s) below.
Consider the following returns:
Year End
Lowes
Realized
Return
Home Depot
Realized
Return
IBM
Realized
Return
2000 20.1% -14.6% 0.2%
2001 72.7% 4.3% -3.2%
2002 -25.7% -58.1% -27.0%
2003 56.9% 71.1% 27.9%
2004 6.7% 17.3% -5.1%
2005 17.9% 0.9% -11.3%
73)
Calculate the covariance between Home Depot's and IBM's returns .
Use the table for the question(s) below.
Consider the following covariances between securities:
Duke Microsoft Wal-Mart
Duke 0.0568 -0.0193 0.0037
Microsoft -0.0193 0.2420 0.1277
Wal-Mart 0.0037 0.1277 0.1413
74)
What is the variance on a portfolio that has $3000 invested in Duke Energy, $4000 invested in Microsoft, and
$3000 invested in Wal-Mart stock?
Use the table for the question(s) below.
Consider the following returns:
Year End
Lowes
Realized
Return
Home Depot
Realized
Return
IBM
Realized
Return
2000 20.1% -14.6% 0.2%
2001 72.7% 4.3% -3.2%
2002 -25.7% -58.1% -27.0%
2003 56.9% 71.1% 27.9%
2004 6.7% 17.3% -5.1%
2005 17.9% 0.9% -11.3%
75)
Calculate the variance on a portfolio that is made up of equal investments in Home Depot and IBM stock .
76)
Calculate the correlation between Home Depot's and IBM's returns .
77)
What is the efficient frontier and how does it change when more stocks are used to construct portfolios?
Use the table for the question(s) below.
Consider the following covariances between securities:
Duke Microsoft Wal-Mart
Duke 0.0568 -0.0193 0.0037
Microsoft -0.0193 0.2420 0.1277
Wal-Mart 0.0037 0.1277 0.1413
78)
The variance on a portfolio that is made up of a $6000 investments in Microsoft and a $4000 investment in
Wal-Mart stock is closest to:
Use the table for the question(s) below.
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
79)
Consider a portfolio consisting of only Microsoft and Wal-Mart stock. Calculate the volatility of such a
portfolio when the weight on Microsoft stock is 0%, 25%, 50%, 75%, and 100%
Answer Key
Testname: C11
Answer Key
Testname: C11
44
Answer Key
Testname: C11
45
Answer Key
Testname: C11
46
Answer Key
Testname: C11
47
Answer Key
Testname: C11
48
