Portfolio management | Management homework help

3Questionsportfoliomanagement.docx

I. Suppose that there are many stocks in the security market and that the characteristics of stocks A and B are given as follows:

Stock      Expected Return     Standard Deviation

A             12%                          6%

B             15%                        8%

Correlation : -1

Suppose that it is possible to borrow at the risk-free rate Rf. What must be the value of the risk-free rate ?
(Hint: Think about constructing a risk-free portfolio from stocks A and B)

Please include your calculations for each question.

II. Suppose you have a project that has a 70% chance of doubling your investment in a year and a 30% change of halving your investment in a year. 
What is the standard deviation of the rate of return on this investment?

Please include your calculations for each question.

III. Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either 70000 USD or 190000 USD with equal probabilities of 50%. The alternative risk-free investment in T bills pays 5% per year.

Please include your calculations for each question.

III.a

If you require a risk premium of 8%, how much will you be willing to pay for the portfolio?

III.b

Suppose that the portfolio can be purchased for the amount you found in III.a. What will be the expected rate of return on the portfolio?

III.c

Now suppose that you require a risk premium of 12%. What is the price that you will be willing to pay?

III.d

Comparing your answers to III.a and III.c, what do you conclude about the relationship between the required risk premium on a portfolio and the price at which the portfolio will sell?

Place your order
(550 words)

Approximate price: $22

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
$26
The price is based on these factors:
Academic level
Number of pages
Urgency
Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more