Jenny has $200,000 to invest and is considering the merits of two securities. He is interested in the common shares of X Co. and Y Inc. The possible monthly rate of return of the securities is shown below: Possible Monthly Rate of Return of Security in January 2019 State of Affair Stock X Stock Y Boom Normal Recession Probability 0.2 0.5 0.3 50% -5% 15% -5% 10% Jenny plans to invest 30% of his money in X and the remainder in Y.
Jenny has $200,000 to invest and is considering the merits of two securities. He is interested in the common shares of X Co. and Y Inc. The possible monthly rate of return of the securities is shown below: Possible Monthly Rate of Return of Security in January 2019 State of Affair Stock X Stock Y Boom Normal Recession Probability 0.2 0.5 0.3 50% -5% 15% -5% 10% Jenny plans to invest 30% of his money in X and the remainder in Y.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
(b) Assume that the covariance between Stock X and Stock Y is -0.005. Calculate the expected
{Hint: you can express your answers for the variance and standard deviation in decimals or percentage form:
• For decimals, the covariance in your equation should be -0.005
• For percentage, the covariance in your equation should be -50%2
(= -50/10000)]
Transcribed Image Text:Jenny has $200,000 to invest and is considering the merits of two securities. He is interested in the
common shares of X Co. and Y Inc. The possible monthly rate of return of the securities is shown
below:
Possible Monthly Rate of Return of Security in January 2019
State of Affair
Stock X
Stock Y
Boom
Normal
Recession
Probability
0.2
0.5
0.3
50%
-5%
15%
-5%
10%
Jenny plans to invest 30% of his money in X and the remainder in Y.
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