d. Create a portfolio P comprising Firms A and B. Calculate P's average return and standard deviation using the weights given below. Using the Excel function std dev is sufficient. Also, report the covariance. Weight in Firm A Weight in Firm B 10% 90% 20% 80% 30% 70% 40% 60% 50% 50% 60% 40% 70% 30% 80% 20% 90% 10% Average return Standard Deviation e. What is your takeaway from this exercise - would you prefer to own stock in Firm A or Firm B? If you had to buy both - which weight allocation would you prefer based on the numbers above? Explain. f. Would you currently be interested in buying stock in either firm? Explain why.

Portfolio  Suppose      rA ~ N (0.05, 0.01), rB ~ N (0.1, 0.04) with pA,B = 0.2 where rA and rB are CCR’s.  a) Suppose you construct a portfolio with 50% for A and 50% for B. Find the variance of the portfolio CCR. b) Find the portfolio expected gross return. c) Find the expected portfolio CCR.

III. 1. The average variance of financial assets on a market is 0.4% and the average covariance between assets is 0.1%. Compute the variance of a portfolio composed of a. 5 assets: b. 100 assets. a. V(Rpf)=.. b. V(Rpf)=.. 2. On a market at equilibrium the effcient frontier has the following equation: E(Rp)=4%+1.2 opf The standard deviation of the market portfolio equals 5%. a. The expected return on a portfolio A with a beta of 1,2 equals .%. b. How much of the total risk of portfolio B is explained by the market if the correlation between A and B equals 0,5? Answer: R? =. %

Using the stock price data for any two companies provided below carry out the following tasks:  1.Compute, for each asset:  i.Total Returns  ii.Expected returns  iii.standard deviation  iv.Correlation Coefficient  2.Construct the variance-covariance matrix  3.Construct equally weighted portfolio and calculate Expected Return, Standard Deviation and Sharpe ratio.  4.Reconstruct equally weighted portfolio and calculate Expected Return, Standard Deviation and Sharpe ratio.  5.Use Solver to determine optimal risky portfolio.  6.Create hypothetical portfolios (commencing from Weight A=0 and weight B=100)  7.Calculate Expected return and Standard Deviation for all the above combinations  8.Graph the efficient frontier  9.Graph the optimal portfolio  10.Assuming that the investors prefers lower level of risk than what a portfolio of risky assets offer, introduce a risk free asset in the portfolio with a return of 3%  11.Using hypothetical weights (A= Portfolio of Risky Assets, B= 1 Risk Free…

The market has three risky assets. The variance-covariance matrix of the risky assets are as follows:   r1 r2 r3 r1 0.25 0 -0.2 r2 0 4 0.1 r3 -0.2 0.1 1 Assume the market portfolio is M = 0.2 ◦ r1 + 0.5 ◦ r2 + 0.3 ◦ r3. Further assume E(rM) = 0.08. (1) What is the variance of M?(2) What is the covariance of r2 and M?(3) What is β2?(4) If the rate of return of the risk-free asset is 0.02. Then what is the fair expected rate of return of security 2?(5) An investor wants to invest in a portfolio P = 0.4◦r1+0.6◦r3. What is its “fair” expected rate of return?

What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation (SDi), covariance (COVij), and asset weight (Wi) are as shown below? Asset (A) E(R₂) = 10% SDA = 8% WA = 0.25 COVAB = 0.006 Select one: A. 13.75% B. 7.72% C. 12.5% D. 8.79% Asset (B) E(RB) = 15% SDB = 9.5% WB = 0.75

Portfolio manager wants to optimize the riskiness of the two assets portfolio with the given statistics below:- Assets Return Volatility Weight A 17.00% 15.00% 40.00% B 21.00% 25.00% 60.00%   Correlation -0.70 -0.35 0.25 0.50 0.70   Requirements Calculate the two assets portfolio standard deviation at different correlation levels which are mentioned above and suggest at which correlation is best suits to your portfolio.

Consider a single-index model economy. The index portfolio M has E(RM ) = 6%, σM = 18%.An individual asset i has an estimate of βi = 1.1 and σ2ei = 0.0225 using the single index modelRi = αi + βiRM + ei. The forecast of asset i’s return is E(ri) = 12%. rf = 4%. a) According to asset i’s return forecast, calculate αi.  (b) Calculate the optimal weight of combining asset i and the index portfolio M .  (c) Calculate the Sharpe ratio of the index portfolio M and the portfolio optimally combiningasset i and the index portfolio M .

Consider the following information for four portfolios, the market, and the risk-free rate (RFR): Portfolio Return Beta SD A1 0.15 1.25 0.182 A2   0.1  0.9 0.223 A3 0.12  1.1 0.138 A4 0.08  0.8 0.125 Market 0.11     1    0.2 RFR 0.03     0       0 Refer to Exhibit 18.6. Calculate the Jensen alpha Measure for each portfolio.   a. A1 = 0.014, A2 = -0.002, A3 = 0.002, A4 = -0.02     b. A1 = 0.002, A2 = -0.02, A3 = 0.002, A4 = -0.014     c. A1 = 0.02, A2 = -0.002, A3 = 0.002, A4 = -0.014     d. A1 = 0.03, A2 = -0.002, A3 = 0.02, A4 = -0.14     e. A1 = 0.02, A2 = -0.002, A3 = 0.02, A4 = -0.14

What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation (SDi), covariance (COVij), and asset weight (Wi) are as shown below? Asset (A) E(R₁) = 10% SDA = 8% WA = 0.25 COVAB = 0.006 Asset (B) E(R₂) = 15% SDB = 9.5% WB = 0.75