PLEASE ANSWER ALL QUESTIONS!!!!!!!! NOTE: For SHARP RATIO, assume the risk free
ID: 2653801 • Letter: P
Question
PLEASE ANSWER ALL QUESTIONS!!!!!!!!
NOTE: For SHARP RATIO, assume the risk free rate to be 0
PLEASE ROUND TO 2 DECIMALS! THANK YOU
AVERAGES
-0.0069
0.0018
0.0015
covariance matrix:
For a portfolio formed by 40% in the SP500 and 60% in A. Calculate the return on the portfolio.
8.) Using the covariance matrix from question 7, calculate the variance of the portfolio formed by 40% in the SP500 and 60% in A.
9.) Using the variance from question 8, calculate the standard deviation of the portfolio formed by 40% in the SP500 and 60% in A.
10.) Using the average and standard deviation from previous questions, calculate the Sharpe ratio for the portfolio formed by 40% in the SP500 and 60% in A.
11.) Using the averages from question 7, calculate the average of a portfolio formed by 30% in A and 70% in B.
12.) Using the covariance matrix from question 7, calculate the variance of a portfolio formed by 30% in A and 70% in B.
13.) Using the variance from question 12, calculate the standard deviation for the portfolio formed by 30% in A and 70% in B.
14.) Using the average and standard deviation from previous questions, calculate the Sharpe ratio for the portfolio formed by 30% in A and 70% in B.
15.) Which of the portfolios offer greater return per unit of risk taken?
A. The portfolio formed by 30% in A and 70% in B
B. portfolio formed by 40% in the SP500 and 60% in A
c. Both give the same return per unit of risk
sp500 A B Average-0.0069
0.0018
0.0015
Explanation / Answer
Answer
Answer No. 8
SP 500
Variance = (SD1)2 = 0.00336 , weight of SP 500 in portfolio = w1 = 0.40
Stock A
Variance = (SD2)2 = 0.0041 , weight of stock A in portfolio = w2 = 0.60
Co variance of SP 500 and stock A = 0.00322
Variance of the portfolio = (Vp) = ?
Vp = (w1)2(SD1)2+(w2)2(SD2)2+2(w1)(w2)(Cov SP 500, A)
= (0.4)2(0.00336)+(0.6)2(0.0041)+2(0.4)(0.6)(0.00322)
= (0.16)(0.00336)+(0.36)(0.0041)+2(0.4)(0.6)(0.00322)
=0.0005376 + 0.001476 + 0.0015456
Vp = 0.0035592
Answer : The variance of the portfolio formed by 40% in the SP500 and 60% in A is 0.0035592
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