Solution Library

Calculation Of Expected Return And Variance For Securities

Question

The expected returns, return variances, and the correlation between the returns of four securities are shown below.

Security

Expected Return

Variance of Returns

Correlation

 

 

 

A

B

C

D

A

0.17

0.0169

1.0

0.4

0.7

0.2

B

0.13

0.0361

 

1.0

0.6

0.5

C

0.09

0.0049

 

 

1.0

0.9

D

0.07

0.0050

 

 

 

1.0

a. Determine the expected return and variance for a portfolio composed of 25% of security A and 75% of security B.

b. Determine the expected return and variance of a portfolio that contains 78% security A and 22% security B. Is this portfolio superior to that one in (a) above?

c. Calculate the expected return and variance of a portfolio that contains 60% security C and 40% security D.

d. If an investor were to select among the following three portfolios, which one would he or she prefer?

  • An equally-weighted portfolio of securities A, B, and C.
  • An equally-weighted portfolio of A, B, and D.
  • An equally-weighted portfolio of B, C, and D.

e. If a risk-adverse investor desires to hold a portfolio of only two securities and expects a return of 11%, what would you advise the investor to do?

 

Summary

The question belongs to Finance and it discusses about expected returns and variance of a portfolio which contains 4 securities. These have been calculated and presented in the solution.

Total Word Count 163

Download Full Solution

Comments

  • HWA
    Rasha

    this is a very good website

  • HWA
    maani

    I have 50 questions for the same test your page is showing only 28

  • HWA
    joeanne

    hi can you please help or guide me to answer my assignments. thanks

  • HWA
    joeanne

    hi can anyone help or guide me to my assignments. thanks

  • HWA
    Monik


  • HWA
    Cristina

    This solution is perfect ...thanks

  • HWA
    Janete

    Hello Allison,I love the 2nd image that you did! I also, had never heard of SumoPaint, is something that I will have to exolpre a bit! I understand completely the 52 (or so) youtube videos that you probably watched. Sometimes they have what you want, sometimes they don't! However, it is always satisfying when you are able to produce something that you have taught yourself. Great job!Debra 0 likes

  • HWA
    Sandeep

    Perfect bank of solution. 

  • HWA
    Oxana

    great !

  • HWA
    Paul Brandon-Fritzius

    thanks for the quick response. the solution looks good. :)

  • HWA
    tina Johnson

    thnx for the answer. it was perfect. just the way i wanted it. 

  • HWA
    Giuseppe

    works fine.