stocks in securities markets
Not what you're looking for?
Suppose that there are many stocks in securities markets and you locate two of them which have the following characteristics:
Stock Expected Return Standard Deviation
A 3% 6%
B 8% 10%
Correlation of the two returns = -1
a. If you wanted to invest in Stocks A and B in such a way as to minimize risk, what weights should you put on the two stocks?
b. What would the portfolio expected return and standard deviation be for the minimum risk portfolio?
c. If there were a market for risk-free assets (like T-bills), what rate of interest would you expect such assets to offer?
Purchase this Solution
Solution Summary
Locate stocks in securities markets in this case.
Solution Preview
Please see the attached file.
1. Suppose that there are many stocks in securities markets and you locate two of them which have the following characteristics:
Stock Expected Return Standard Deviation
A 3% 6%
B 8% 10%
Correlation of the two returns = -1
a. If you wanted to invest in Stocks A and B in such a way as to minimize risk, what weights should you put on the two stocks?
The varaince of the portfolio is:
Var = (Wa*Sa)2 + (Wb*Sb)2 + 2ρAB Wa*Wb*Sa*Sb
Where:
S is the standard ...
Purchase this Solution
Free BrainMass Quizzes
Basics of Economics
Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.
Economic Issues and Concepts
This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.
Pricing Strategies
Discussion about various pricing techniques of profit-seeking firms.
Economics, Basic Concepts, Demand-Supply-Equilibrium
The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.
Elementary Microeconomics
This quiz reviews the basic concept of supply and demand analysis.