5.

a) 15.65%
b) 0.104%
c) 6.27%
6.
a) 2004= 5.5%, 2005= 13.5%, 2006= 17.5%, 2007= -4.0%, 2008= -3.0%, 2009= 17.0%
b) Average= 7.75%, Volatility= 0.72%
d) The portfolio has a lower volatility than the average volatility of the two stocks because some
of the risk of the stocks in the portfolio is diversified away.
7. Variance= (0.7)^2 * 0.106^2 + (0.3)^2 * 0.1565^2 + 2(0.7)(0.3)(0.0627)(0.106)(0.1565)^5
Standard Deviation = 9.02%
8. = 0.30*0.38*0.31= 0.03534
26. The set of efficient portfolios is approximately the portfolios with no more than 65% invested
in Johnson & Johnson
29. Correlation > 30%/40%= 75%
33.
a) Volatility= 28.15%
b) R= 115000(1.25) 15000(1.04) / 100000 = 28.15%
c) R= 115000(0.80) 15000(1.04) / 100000 = -23.6%
49.
a) HEC= 0.48(Beta), 5.4(Return)
Green= 1.5(Beta), 10.5(Return)
Alive= 0.65(Beta), 6.25(Return)

b) Expected return= 7.525

c) Portfolio Beta= 0.905
d) 7.525