14
41. Refer to Exhibit 6-4. What is the expected return of a portfolio of two risky assets if the expected
return E(Ri), standard deviation (i), covariance (COVi,j), and asset weight (Wi) are as shown above?
a.
8.6%
b.
8.1%
c.
9.3%
d.
10.2%
e.
11.6%
42. Refer to Exhibit 6-4. What is the standard deviation of this portfolio?
a.
5.02%
b.
3.88%
c.
6.21%
d.
4.04%
e.
4.34%
Exhibit 6-5
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Asset (A)
Asset (B)
E(RA) = 8%
E(RB) = 15%
(A) = 7%
(B) = 10%
WA = 0.4
WB = 0.6
43. Refer to Exhibit 6-5. What is the expected return of a portfolio of two risky assets if the expected
return E(Ri), standard deviation (i), covariance (COVi,j), and asset weight (Wi) are as shown above?
a.
8.0%
b.
12.2%
c.
7.4%
d.
9.1%
e.
11.6%
15
44. Refer to Exhibit 6-5. What is the standard deviation of this portfolio?
a.
3.89%
b.
4.61%
c.
5.02%
d.
6.83%
e.
6.09%
Exhibit 6-6
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Asset (A)
Asset (B)
E(RA) = 16%
E(RB) = 10%
(A) = 9%
(B) = 7%
WA = 0.5
WB = 0.5
45. Refer to Exhibit 6-6. What is the expected return of a portfolio of two risky assets if the expected
return E(Ri), standard deviation (i), covariance (COVi,j), and asset weight (Wi) are as shown above?
a.
10.6 %
b.
10.2%
c.
13.0%
d.
11.9%
e.
14.0%
46. Refer to Exhibit 6-6. What is the standard deviation of this portfolio?
a.
6.08%
b.
5.89%
c.
7.06%
d.
6.54%
e.
7.26%
16
Exhibit 6-7
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Asset (A)
Asset (B)
E(RA) = 7%
E(RB) = 9%
(A) = 6%
(B) = 5%
WA = 0.6
WB = 0.4
47. Refer to Exhibit 6-7. What is the expected return of a portfolio of two risky assets if the expected
return E(Ri), standard deviation (i), covariance (COVi,j), and asset weight (Wi) are as shown above?
a.
5.8%
b.
6.1%
c.
6.9%
d.
7.8%
e.
8.9%
48. Refer to Exhibit 6-7. What is the standard deviation of this portfolio?
a.
4.87%
b.
3.62%
c.
4.13%
d.
5.76%
e.
6.02%
17
Exhibit 6-8
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Asset (A)
Asset (B)
E(RA) = 10%
E(RB) = 14%
(A) = 7%
(B) = 8%
WA = 0.7
WB = 0.3
49. Refer to Exhibit 6-8. What is the expected return of a portfolio of two risky assets if the expected
return E(Ri), standard deviation (i), covariance (COVi,j), and asset weight (Wi) are as shown above?
a.
6.4%
b.
9.1%
c.
10.2%
d.
10.8%
e.
11.2%
50. Refer to Exhibit 6-8. What is the standard deviation of this portfolio?
a.
4.51%
b.
5.94%
c.
6.75%
d.
7.09%
e.
8.62%
18
Exhibit 6-9
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Asset (A)
Asset (B)
E(RA) = 18%
E(RB) = 13%
(A) = 7%
(B) = 6%
WA = 0.3
WB = 0.7
51. Refer to Exhibit 6-9. What is the expected return of a portfolio of two risky assets if the expected
return E(Ri), standard deviation (i), covariance (COVi,j), and asset weight (Wi) are as shown above?
a.
10.10%
b.
11.60%
c.
13.88%
d.
14.50%
e.
15.37%
52. Refer to Exhibit 6-9. What is the standard deviation of this portfolio?
a.
5.16%
b.
5.89%
c.
6.11%
d.
6.57%
e.
7.02%
19
Exhibit 6-10
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Asset (A)
Asset (B)
E(RA) = 16%
E(RB) = 14%
(A) = 3%
(B) = 8%
WA = 0.5
WB = 0.5
53. Refer to Exhibit 6-10. What is the expected return of a portfolio of two risky assets if the expected
return E(Ri), standard deviation (i), covariance (COVi,j), and asset weight (Wi) are as shown above?
a.
11%
b.
12%
c.
13%
d.
14%
e.
15%
54. Refer to Exhibit 6-10. What is the standard deviation of this portfolio?
a.
3.02%
b.
4.88%
c.
5.24%
d.
5.98%
e.
6.52%
20
Exhibit 6-11
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Asset 1
Asset 2
E(R1) = 0.28
E(R2) = 0.12
E(1) = 0.15
E(2) = 0.11
W1 = 0.42
W2 = 0.58
55. Refer to Exhibit 6-11. Calculate the expected return of the two-stock portfolio.
a.
0.107
b.
0.1367
c.
0.1169
d.
0.1872
e.
0.20
56. Refer to Exhibit 6-11. Calculate the expected standard deviation of the two-stock portfolio.
a.
0.1367
b.
0.1872
c.
0.1169
d.
0.20
e.
0.3950
21
Exhibit 6-12
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Asset 1
Asset 2
E(R1) = .12
E(R2) = .16
E(1) = .04
E(2) = .06
57. Refer to Exhibit 6-12. Calculate the expected return and expected standard deviation of a two-stock
portfolio when r1,2 = −.60 and w1 = .75.
a.
.13 and .0024
b.
.13 and .0455
c.
.12 and .0585
d.
.12 and .5585
e.
.13 and .6758
58. Refer to Exhibit 6-12. Calculate the expected returns and expected standard deviations of a two-stock
portfolio when r1,2 = .80 and w1 = .60.
a.
.144 and .0002
b.
.144 and .0018
c.
.136 and .0045
d.
.136 and .0455
e.
.136 and .4554
59. Consider two securities, A and B. Security A and B have a correlation coefficient of 0.65. Security A
has standard deviation of 12, and security B has standard deviation of 25. Calculate the covariance
between these two securities.
a.
300
b.
461.54
c.
261.54
d.
195
e.
200
22
60. Calculate the expected return for a three-asset portfolio with the following
Asset
Exp. Ret.
Std. Dev
Weight
A
0.0675
0.12
0.25
B
0.1235
0.1675
0.35
C
0.1425
0.1835
0.40
a.
11.71%
b.
11.12%
c.
15.70%
d.
14.25%
e.
6.75%.
61. Given the following weights and expected security returns, calculate the expected return for the
portfolio.
Weight
Expected Return
.20
.06
.25
.08
.30
.10
.25
.12
a.
0.085
b.
0.090
c.
0.092
d.
0.097
e.
None of the above
Weight
.20
.06
.012
.25
.08
.020
.30
.10
.030
.25
.12
.030
.092
23
Exhibit 6-13
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
A financial analyst covering Magnum Oil has determined the following four possible returns given
four different states of the economy over the next period.
Probability
Return
0.10
−.20
0.25
−.05
0.40
0.15
0.25
0.30
62. Refer to Exhibit 6-13. Calculate the expected return for Magnum Oil.
a.
5.0
b.
10.3%
c.
13.7%
d.
17.5%
e.
20.0%
63. Refer to Exhibit 6-13. Calculate the standard deviation for Magnum Oil.
a.
0%
b.
11%
c.
16%
d.
20%
e.
26%
24
Exhibit 6-14
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Stocks A and B have a correlation coefficient of −0.8. The stocks expected returns and standard
deviations are in the table below. A portfolio consisting of 40% of stock A and 60% of stock B is
constructed.
Stock
Expected Return
Standard Deviation
A
20%
25%
B
15%
19%
64. Refer to Exhibit 6-14. What is the expected return of the stock A and B portfolio?
a.
17.0%
b.
17.5%
c.
18.0%
d.
18.5%
e.
19.0%
65. Refer to Exhibit 6-14. What is the standard deviation of the stock A and B portfolio?
a.
0.0%
b.
0.5%
c.
4.1%
d.
6.9%
e.
20.3%
66. Refer to Exhibit 6-14. What percentage of stock A should be invested to obtain the minimum risk
portfolio that contains stock A and B?
a.
35%
b.
42%
c.
58%
d.
65%
e.
72%
25
67. What is the standard deviation of an equally weighted portfolio of two stocks with a covariance of
0.009, if the standard deviation of the first stock is 15% and the standard deviation of the second stock
is 20%?
a.
2.0%
b.
2.1%
c.
7.8%
d.
14.2%
e.
14.7%