John has an investment budget of £20,000. In addition, he has borrowed £10,000 at a fixed interest rate of 5%. He decides to invest all available funds in a portfolio of equities which has an expected rate of return of 12% and standard deviation of 20%. What is the standard deviation of the return on John’s overall investment portfolio?
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John has an investment budget of £20,000. In addition, he has borrowed £10,000 at a fixed interest rate of 5%. He decides to invest all available funds in a portfolio of equities which has an expected
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- You plan to invest $1,000 in a corporate bond fund or in a common stock fund. The following table represents the annual return (per $1,000) of each of these investments under various economic conditions and the probability that each of those economic conditions will occur. Compute the expected return for the corporate bond and for the common stock fund. Show your calculations on excel for expected returns. Compute the standard deviation for the corporate bond fund and for the common stock fund. Would you invest in the corporate bond fund or the common stock fund? Explain. If choose to invest in the common stock fund and in (c), what do you think about the possibility of losing $999 of every $1,000 invested if there is depression. Explain.Portfolio ABZ has a daily expected return of 0.0634% and a daily standard deviation of 1.1213%. Assuming that the daily 5 percent parametric VaR is $6 million, calculate the annual 5 percent parametric VaR for a portfolio with a market value of $ 120 million. (Assume 250 trading days in a year and give your answer in Dollars)Elizabeth has decided to form a portfolio by putting 30% of her money into stock 1 and 70% into stock 2. She assumes that the expected returns will be 10% and 18%, respectively, and that the standard deviations will be 15% and 24%, respectively. Describe what happens to the standard deviation of the portfolio returns when the coefficient of correlation ρ decreases. The standard deviation of the portfolio returns decreases as the coefficient of correlation decreases. The standard deviation of the portfolio returns increases as the coefficient of correlation increases. The standard deviation of the portfolio returns decreases as the coefficient of correlation increases. The standard deviation of the portfolio returns increases as the coefficient of correlation decreases.
- John Davidson is an investment adviser at Leeds Asset Management plc. He is asked by a client to evaluate various investment opportunities currently available and he has calculated expected returns and standard deviations for five different well-diversified portfolios of risky assets: Portfolio Expected return Standard deviation Q 7.8% 10.5% R 10.0% 14.0% S 4.6% 5.0% T 11.7% 18.5% U 6.2% 7.5% (a) For each portfolio, calculate the risk premium per unit of risk (Sharpe ratio) that you expect to receive. Assume that the risk-free rate is 3.0%. (b) If you are only willing to make an investment with a standard deviation of 7.0%, is it possible for you to earn a return of 7.0%? (c) What is the minimum level of risk that would be necessary for an investment to earn 7.0%? What is the composition of the portfolio along the Capital Market Line (CML) that will generate that expected return?8. Risk and return Suppose Frances is choosing how to allocate her portfolio between two asset classes: risk-free government bonds and a risky group of diversified stocks. The following table shows the risk and return associated with different combinations of stocks and bonds. Combination A B с D E Fraction of Portfolio in Diversified Stocks (Percent) 0 25 50 75 100 Average Annual Return (Percent) 2.00 4.50 7.00 9.50 12.00 As the risk of Frances's portfolio increases, the average annual return on her portfolio Standard Deviation of Portfolio Return (Risk) (Percent) 0 Accept more risk Sell some of her bonds and use the proceeds to purchase stocks Sell some of her stocks and place the proceeds in a savings account Sell some of her stocks and use the proceeds to purchase bonds 5 10 15 20 Suppose Frances currently allocates 25% of her portfolio to a diversified group of stocks and 75% of her portfolio to risk-free bonds; that is, she chooses combination B. She wants to increase the average…An aggressive investment in Industry 4.0 next-generation technology has the potential to save your company $7M if it is very successful, or $3M if it is moderately successful, but it will cost $2M if it fails. The relative risk for the project is $1.25M. The company has a risk tolerance of $1 million and has assigned a utility value of .777 based on an exponential utility function for this investment. What is the value of a safe investment that the company would just as soon choose rather than investing in the IT project? A. $2M B. $1.5M C. 52.75 D. $1.25M
- You decide to invest in a portfolio consisting of 21 percent Stock X, 48 percent Stock Y, and the remainder in Stock Z. Based on the following information, what is the standard deviation of your portfolio? State of Economy Normal Boom Probability of State of Economy .84 .16 Return if Stat Stock X Stock Y 10.20% 3.60% 17.50% 25.50%You are considering a $500,000 investment in the fast-food industry and have narrowed your choice to either a McDonald's or a Penn Station East Coast Subs franchise. McDonald's indicates that, based on the location where you are proposing to open a new restaurant, there is a 25 percent probability that aggregate 10-year profits (net of the initial investment) will be $16 million, a 50 percent probability that profits will be $8 million, and a 25 percent probability that profits will be -$1.6 million. The aggregate 10-year profit projections (net of the initial investment) for a Penn Station East Coast Subs franchise is $48 million with a 2.5 percent probability, $8 million with a 95 percent probability, and -$48 million with a 2.5 percent probability. Considering both the risk and expected profitability of these two investment opportunities, which is the better investment? Explain carefully.An investor allocates $30,000 and $50,000 to two assets (A1 and A2). These assets generate 5% and -4.5% rate of returns, respectively. She allocates the remaining 50% of her portfolio to an asset (A3), which provides 4.5% rate of return. Calculate the portfolio's rate of return.
- Two stocks are available. The corresponding expectedrates of return are r¯1 and r¯2; the corresponding variances and covariances areσ12, σ22, and σ12. What percentages of total investment should be invested ineach of the two stocks to minimize the total variance of the rate of return ofthe resulting portfolio? What is the mean rate of return of this portfolio?Assume that you have all your wealth (one million dollars) invested in the Vanguard 500 index fund, and that you expect to earn an annual return of 11%, with a standard deviation in returns of 24%. Since you have become more risk averse, you decide to shift $200,000 from the Vanguard 500 index fund to Treasury bills. The T-bill rate is 5%. Estimate the expected return and standard deviation of your new portfolio.Given the following information, what is the standard deviation of the returns on a portfolio that is invested 35 percent in both Stocks A and C, and 30 percent in Stock B? (see attached chart)