Tyler Trucks stock has an annual return mean and standard deviation of 12 percen

Question

Tyler Trucks stock has an annual return mean and standard deviation of 12 percent and 35 percent, respectively. Michael Moped Manufacturing stock has an annual return mean and standard deviation of 10.8 percent and 53 percent, respectively. Your portfolio allocates equal funds to Tyler Trucks stock and Michael Moped Manufacturing stock. The return correlation between Tyler Trucks and Michael Moped Manufacturing is.5. What is the smallest expected loss for your portfolio in the coming month with a probability of 2.5 percent?

Explanation / Answer

Answer: Smallest expected loss= -21.71%

E(R) = (0.12 + 0.108) / 2 = 0.114/12 = .0095
= [(.5^2)(35^2) + (.5^2)(53^2) + 2(.5)(.5)(35)(53)(.5)] =1472.25
=(1472.25/12)^1/2 = 11.08%

Prob(R .0095 - 1.96(11.08)) =2.5%
Prob(R -0.217073) = 2.5%

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.