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Seagull Company and Swan Company are both service compa- nies. Their stock returns for the past three years were: Seagull: -5%, 15%, 20%; Swan: 8%, 8%, 20%. i) Calculate the mean return and variance for each company. ii) Calculate the covariance between the returns of the companies and the standard deviations of the returns to the companies. iii) Calculate the correlation coefficient between the returns of the two companies. iv) If Seagull and Swan are combined into a portfolio with 50% of the funds invested in each stock, calculate the expected return on the portfolio. v) What is the variance and standard deviation of such a portfolio (as described in part iv)?

Seagull Company and Swan Company are both service compa- nies. Their stock returns for the past three years were: Seagull: -5%, 15%, 20%; Swan: 8%, 8%, 20%. i) Calculate the mean return and variance for each company. ii) Calculate the covariance between the returns of the companies and the standard deviations of the returns to the companies. iii) Calculate the correlation coefficient between the returns of the two companies. iv) If Seagull and Swan are combined into a portfolio with 50% of the funds invested in each stock, calculate the expected return on the portfolio. v) What is the variance and standard deviation of such a portfolio (as described in part iv)?

Glencoe Algebra 1, Student Edition, 9780079039897, 0079039898, 2018
Glencoe Algebra 1, Student Edition, 9780079039897, 0079039898, 2018
18th Edition
ISBN:9780079039897
Author:Carter
Publisher:Carter
Chapter10: Statistics
Section10.3: Measures Of Spread
Problem 1GP
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Seagull Company and Swan Company are both service compa- nies. Their stock returns for the past three years were: Seagull: -5%, 15%, 20%; Swan: 8%, 8%, 20%. i) Calculate the mean return and variance for each company. ii) Calculate the covariance between the returns of the companies and the standard deviations of the returns to the companies. iii) Calculate the correlation coefficient between the returns of the two companies. iv) If Seagull and Swan are combined into a portfolio with 50% of the funds invested in each stock, calculate the expected return on the portfolio. v) What is the variance and standard deviation of such a portfolio (as described in part iv)?
Transcribed Image Text:Seagull Company and Swan Company are both service compa- nies. Their stock returns for the past three years were: Seagull: -5%, 15%, 20%; Swan: 8%, 8%, 20%. i) Calculate the mean return and variance for each company. ii) Calculate the covariance between the returns of the companies and the standard deviations of the returns to the companies. iii) Calculate the correlation coefficient between the returns of the two companies. iv) If Seagull and Swan are combined into a portfolio with 50% of the funds invested in each stock, calculate the expected return on the portfolio. v) What is the variance and standard deviation of such a portfolio (as described in part iv)?
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