help in homework

New User?

Fill This Form To Receive Instant Help

Help in Homework
trustpilot ratings
google ratings


Homework answers / question archive / Richard has two investment opportunities, He can invest in The Sunglasses Company or The Umbrella Company

Richard has two investment opportunities, He can invest in The Sunglasses Company or The Umbrella Company

Finance

Richard has two investment opportunities, He can invest in The Sunglasses Company or The Umbrella Company. If he diversifies his investment by putting 50% of his money into each company, what is the expected return and standard deviation of his portfolio? State of the Probability of the Expected Return Sunglasses Expected Return Economy State Company Umbrella Company Sunny .50 25% 0% Rainy .50 25% A) The expected return for the portfolio is 12.50% and the standard deviation 0.00%. B) The expected return for the portfolio is 25.00% and the standard deviation 0.00%. C) The expected return for the portfolio is 12.50% and the standard deviation 12.50%. D) The expected return for the portfolio is 25.00% and the standard deviation 25.00%. 0%

pur-new-sol

Purchase A New Answer

Custom new solution created by our subject matter experts

GET A QUOTE

Answer Preview

  • To determine we will calculate portfolio return and portfolio standard deviation.

    Scenario Probability S U S*P U*P (S-S Bar)^2 * P (U- U bar )^2 * P (S - S bar) (U -U Bar )*P
    Sunny 0.5 25 0 12.50 0.00 78.125 78.125 -78.125
    Rainy 0.5 0 25 0.00 12.50 78.125 78.125 -78.125
      Total     12.50 12.50 156.250 156.250 -156.250
      Standard Deviation -     12.500 12.500  

    Return of S = ∑S*P = 12.50%

    Return U + ∑U*P = 12.50 %

    SD S = √∑((S-S Bar)^2 * P) = 12.50 %

    SD U = √∑ ((U- U bar )^2 * P) = 12.50%

    Corelation Coefficent = ∑(S - S bar) (U -U Bar )*P / SD S * SD U = -156.25/12.50*12.50 = -1

    Portfolio Return = ∑R*P = 12.50 *0.50 + 12.50 *0.50 = 12.50%

    Portfolio Risk = √(SD S * WS )2 +(SD U * WU)2 + 2*SD S * SD U * WS * WU * r(S,U)

    = √(12.50*0.50)2 + (12.50*0.50)2 + 2*12.50*12.50*0.50 *0.50 * (-1)

    =0

    Therefore Correct answer is A

Sitejabber (5.0)

BBC (5.0)

Trustpilot (4.9)

Google (5.0)