Question 5. Consider the following data for stocks X and Y and a risk-free asset: RETURNS OF X AND Y STOCKS х Y Average return 19.00% 13.00% Variance 0.09 0.04 Standard deviation 30% 20% Covariance of retum 0.01 Risk-free return 3.00% a. What is the return and standard deviation of the minimum variance portfolio of Stock X and Y? b. What is the return and standard deviation of a portfolio composed of 30% of the minimum variance portfolio and 70% of the risk-free asset? Repeat this question with weights of 50% for the risk-free asset and the minimum variance portfolio c. Create a portfolio composed of the risk-free assets and the minimum variance portfolio that has an expected return of 9%. What will the percentage of the portfolio invested in the risk-free asset and the minimum variance portfolio be? 6. Compute the Sharpe ratio for the following portfolios, assuming the risk-free asset is 4%. What is the best portfolio according to the Sharpe ratio? I

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Transcribed Image Text: 5. Consider the following data for stocks X and Y and a risk-free asset: RETURNS OF X AND Y STOCKS х Y Average return 19.00% 13.00% Variance 0.09 0.04 Standard deviation 30% 20% Covariance of retum 0.01 Risk-free return 3.00% a. What is the return and standard deviation of the minimum variance portfolio of Stock X and Y? b. What is the return and standard deviation of a portfolio composed of 30% of the minimum variance portfolio and 70% of the risk-free asset? Repeat this question with weights of 50% for the risk-free asset and the minimum variance portfolio c. Create a portfolio composed of the risk-free assets and the minimum variance portfolio that has an expected return of 9%. What will the percentage of the portfolio invested in the risk-free asset and the minimum variance portfolio be? 6. Compute the Sharpe ratio for the following portfolios, assuming the risk-free asset is 4%. What is the best portfolio according to the Sharpe ratio? I
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Transcribed Image Text: 5. Consider the following data for stocks X and Y and a risk-free asset: RETURNS OF X AND Y STOCKS х Y Average return 19.00% 13.00% Variance 0.09 0.04 Standard deviation 30% 20% Covariance of retum 0.01 Risk-free return 3.00% a. What is the return and standard deviation of the minimum variance portfolio of Stock X and Y? b. What is the return and standard deviation of a portfolio composed of 30% of the minimum variance portfolio and 70% of the risk-free asset? Repeat this question with weights of 50% for the risk-free asset and the minimum variance portfolio c. Create a portfolio composed of the risk-free assets and the minimum variance portfolio that has an expected return of 9%. What will the percentage of the portfolio invested in the risk-free asset and the minimum variance portfolio be? 6. Compute the Sharpe ratio for the following portfolios, assuming the risk-free asset is 4%. What is the best portfolio according to the Sharpe ratio? I
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C {:[" D "," E "," F "]:}Variance of the overall portfolio =w_(min var)^(**)sigma^(2)(R_(minvar)) (As variance of risk free asset is zero.)0.29%=(D57^(***)D56)^(^^)2Standard deviation of the overall portfolio5.35%=SQRT(D62)Hence,Calculation of expected return and St. Deviation of overall portfolio with 50% weight in each:Expected return of overall portfolio8.82%" =SUMPRODUCT(D57:E57,D55:E55) "Variance of the overall portfolioHence,c)Expected return on minimum variance portfolioRisk free rateTarget Return of the p ... See the full answer