Question 2 (total of 12 marks): An investor has a portfolio of two securities, stock...
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Question 2 (total of 12 marks): An investor has a portfolio of two securities, stock XYZ and an exchange traded fund (ETF) that tracks the ASX200 and charges negligible fees. Assume that the ASX200 ETF is the market portfolio. The following table summarizes the investors' holdings. Assume that returns are effective annual rates or net discrete returns, Portfolio Details XYZ ASX200 ETF Investment dollars $30,000 $70,000 Expected return 0.05 0.09 Total standard deviation 0.15 0.20 Beta 1 Correlation of returns between XYZ and ASX200 0.55 Provide answers as decimals rounded to 6 decimal places. For example, if your answer is 0.23456789, write it as 0.234568. Question 2a (2 marks): What is the portfolio's total expected return pa? Answers: Question 2b (2 marks): What is the portfolio's total variance of returns pa? Answers: Question 2c (2 marks): What is the beta of stock XYZ? Answers: Question 2d (2 marks): What is the beta of the portfolio? Answers: Question 2e [2 marks): What is the portfolio's systematic variance of returns pa? Answers: Question 2f (2 marks): Assuming that stock XYZ and the ETF are fairly priced, calculate the risk free rate. Answers
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