Suppose you are considering purchasing a 2-stock portfolio that will hold shares in IBM and PepsiCo and that you believe the stocks will perform as follows: IBM PepsiCo Expected Return 15% 10% Standard Deviation 25% 16% Assume there is -0.20 correlation between the two stocks. Question 46 (1 point) What is the Covariance between IBM and PepsiCo? Question 46 options: a) 0.0080 b) 0.0000 c) -0.2000 d) -0.0080 Question 47 (1 point) What is the Portfolio Return of a Portfolio split 70% in IBM and 30% in PepsiCo? Question 47 options: a) 12.78% b) 13.00% c) 13.50% d) 14.00% Question 48 (1 point) What is the Portfolio Standard Deviation of a Portfolio split 80% in IBM and 20% in PepsiCo? Question 48 options: a) 12.17% b) 12.78% c) 17.20% d) 19.61% Question 49 (1 point) Looking at a Portfolio split 60% in IBM and 40% in PepsiCo, which of the following statements is true? Question 49 options: a) The subject portfolio has an expected return of 11.00% and standard deviation of 12.78% which makes an inefficient portfolio b) The subject portfolio has an expected return of 13.00% and standard deviation of 15.09% which makes an inefficient portfolio c) The subject portfolio has an expected return of 11.00% and standard deviation of 12.78% which makes an efficient portfolio d) The subject portfolio has an expected return of 13.00% and standard deviation of 15.09% which makes an efficient portfolio Question 50 (1 point) Looking at a Portfolio split 20% in IBM and 80% in PepsiCo, which of the following statements is true? Question 50 options: a) The subject portfolio has an expected return of 11.00% and standard deviation of 12.78% which makes an inefficient portfolio b) The subject portfolio has an expected return of 13.00% and standard deviation of 15.09% which makes an inefficient portfolio c) The subject portfolio has an expected return of 11.00% and standard deviation of 12.78% which makes an efficient portfolio d) The subject portfolio has an expected return of 13.00% and standard deviation of 15.09% which makes an efficient portfolio
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Akash M.
J.P. Morgan Asset Management publishes information about financial investments. Between 2002 and 2011 the expected return for the S&P 500 was $5.04 %$ with a standard deviation of $19.45 %$ and the expected return over that same period for a core bonds fund was $5.78 %$ with a standard deviation of $2.13 %$ (J.P. Morgan Asset Management, Guide to the Markets). The publication also reported that the correlation between the S&P 500 and core bonds is $-.32$. You are considering portfolio investments that are composed of an S&P 500 index fund and a core bonds fund. a. Using the information provided, determine the covariance between the S&P 500 and core bonds. b. Construct a portfolio that is $50 %$ invested in an S&P 500 index fund and $50 %$ in a core bonds fund. In percentage terms, what are the expected return and standard deviation for such a portfolio? c. Construct a portfolio that is $20 %$ invested in an S&P 500 index fund and $80 %$ invested in a core bonds fund. In percentage terms, what are the expected return and standard deviation for such a portfolio? d. Construct a portfolio that is $80 %$ invested in an S&P 500 index fund and $20 %$ invested in a core bonds fund. In percentage terms, what are the expected return and standard deviation for such a portfolio? e. Which of the portfolios in parts (b), (c), and (d) has the largest expected return? Which has the smallest standard deviation? Which of these portfolios is the best investment alternative? f. Discuss the advantages and disadvantages of investing in the three portfolios in parts (b), (c), and (d). Would you prefer investing all your money in the S&P 500 index, the core bonds fund, or one of the three portfolios? Why?
Areen D.
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