UMass Dartmouth FIN 670 - FIN 670 Homework 5 (13 pages)

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FIN 670 Homework 5



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FIN 670 Homework 5

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Pages:
13
School:
University of Massachusetts Dartmouth
Course:
Fin 670 - Investment Analysis
Investment Analysis Documents

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Investment Analysis FIN 670 Fall 2009 Homework 5 Instructions please read carefully You should show your work how to get the answer for each calculation question to get full credit The due date is Tuesday November 10 2009 Late homework will not be graded Name s Student ID 1 Compute the expected return for a three stock portfolio with the following a b c d 1 b 13 3 14 6 29 3 32 4 10 0 2 12 0 3 18 0 5 14 6 2 A portfolio is considered to be efficient if a there is no other portfolio with a higher expected return b there is no other portfolio with a lower risk c there is no other portfolio offers a higher expected return with a higher risk d there is no other portfolio offers a lower risk with the same expected return 2 d 3 Which of the following is are most correct concerning a two stock portfolio a The portfolio should have no company specific risk b Portfolio standard deviation can never be a weighted average of the two stocks standard deviations c Portfolio return is a weighted average of the two stocks returns d All of the above are correct 3 c 4 The maximum benefit of diversification can be achieved by combining securities in a portfolio where the correlation coefficient between the securities is a between 0 and 1 b 0 c 1 d 1 4 c 5 A portfolio is composed of two stocks A and B Stock A has a standard deviation of return of 20 while stock B has a standard deviation of return of 30 Stock A comprises 40 of the portfolio while stock B comprises 60 of the portfolio What is the standard deviation of return on the portfolio if the correlation coefficient between the returns on A and B is 0 5 a 23 1 b 25 c 26 d 24 7 5 a 2 4 2 2 2 6 2 3 2 2 4 6 2 3 5 231 2 0532 6 A portfolio is composed of two stocks A and B Stock A has an expected return of 10 while stock B has an expected return of 18 What is the proportion of stock A in the portfolio so that the expected return of the portfolio is 16 4 a 0 2 b 0 8 c 0 4 d 0 6 6 a E Rp Wa E Ra 1 Wa E Rb 0 164 Wa 0 10 1 Wa 0 18 Wa 0 2 7



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