Question: Third Question Only. 1) There Are Two Stocks Which An Investor Wants To Buy. The Stock Has An Expected Return Of 25% And An Expected Variance Of 16% While Stock B Has An Expected Return Of 15% And Expected Variance Of 9%. Find The Portfolio Return And Portfolio Variance Assuming That The Correlation Coefficient Between A And B Is + 0.4 And Assuming …

Question: Third Question Only. 1) There Are Two Stocks Which An Investor Wants To Buy. The Stock Has An Expected Return Of 25% And An Expected Variance Of 16% While Stock B Has An Expected Return Of 15% And Expected Variance Of 9%. Find The Portfolio Return And Portfolio Variance Assuming That The Correlation Coefficient Between A And B Is + 0.4 And Assuming …

Third question only.

1) There are two stocks which an investor wants to buy. Thestock has an expected return of 25% and an expected variance of 16%while stock B has an expected return of 15% and expected varianceof 9%. Find the portfolio return and portfolio variance assumingthat the correlation coefficient between A and B is + 0.4 andassuming that investor invests 60% of his/her money in stock A.

2) In the problem above; let us assume that this investor whodemands an expected return of 20% wants to minimize the variance bychoosing optimal portfolio weights. Show the Lagrangian (usingnumbers that I gave) that may be used for that purpose and set theequation system which will lead to the optimal weights (just setthe equation system, a numerical answer for optimal weights is notrequired)

3) Now suppose that the investor wants only to buy A (whoseexpected return and variance is given in Q1) but also wants toinvest 40% of his/her money in a risk-free T-Bill whose return is12%. The correlation coefficient between a T-Bill and stock A is+0.2. Given this find the portfolio expected return and portfoliovariance.

4) There are two firms. One is a firm which exports most of itsproducts and uses raw materials produced in Turkey. The second firmsells most of its products in Turkey and most of its raw materialscome from China and firm pays dollars to buy these raw materials.What may be the sign of the correlation coefficient between thestock prices of these two companies in the last three months ifdollar was continously increasing in the last three months? Justifyyour conclusion by a short explanation.