You are considering investing in two securities, X and Y. The following data are available for the two securities: Chapter 8, Problem 5P, You are considering investing in two securities, X and Y. The following data are available for the a. If you invest 40 percent of your funds in Security X and 60 percent in Security Y and if the correlation of returns between X and Y is +0.5, compute the following: i. The expected return from the portfolio ii. The standard deviation of returns from the portfolio b. What happens to the expected return and standard deviation of returns of the portfolio in Part a if 70 percent of your funds are invested in Security X and 30 percent of your funds are invested in Security Y? c. What happens to the expected return and standard deviation of returns of the portfolio in Part a if the following conditions exist? i. The correlation of returns between Securities X and Y is +1.0. ii. The correlation of returns between Securities X and Y is 0. iii. The correlation of returns between Securities X and Y is -0.7.

You are considering investing in two securities, X and Y. The following data are available for the two securities: Chapter 8, Problem 5P, You are considering investing in two securities, X and Y. The following data are available for the a. If you invest 40 percent of your funds in Security X and 60 percent in Security Y and if the correlation of returns between X and Y is +0.5, compute the following: i. The expected return from the portfolio ii. The standard deviation of returns from the portfolio b. What happens to the expected return and standard deviation of returns of the portfolio in Part a if 70 percent of your funds are invested in Security X and 30 percent of your funds are invested in Security Y? c. What happens to the expected return and standard deviation of returns of the portfolio in Part a if the following conditions exist? i. The correlation of returns between Securities X and Y is +1.0. ii. The correlation of returns between Securities X and Y is 0. iii. The correlation of returns between Securities X and Y is -0.7.

College Algebra

7th Edition

ISBN:9781305115545

Author:James Stewart, Lothar Redlin, Saleem Watson

Publisher:James Stewart, Lothar Redlin, Saleem Watson

Chapter9: Counting And Probability

Section9.4: Expected Value

Problem 1E: If a game gives payoffs of $10 and $100 with probabilities 0.9 and 0.1, respectively, then the...

See similar textbooks

Similar questions

Suppose that the index model for two Canadian stocks HD and ML is estimated with the following results: RHD =-0.03+2.10RM+eHD R-squared =0.7 RML =0.06+1.60RM+eML R-squared =0.6 σM =0.15 where M is S&P/TSX Comp Index and RX is the excess return of stock X. What is the covariance and the correlation coefficient between HD and ML?
Following is the payoff table for the Pittsburgh Development Corporation (PDC) Condominium Project. Amounts are in millions of dollars. State of Nature Decision Alternative Strong Demand S1 Weak Demand S2 Small complex, d1 9 8 Medium complex, d2 13 3 Large complex, d3 19 -9 Suppose PDC is optimistic about the potential for the luxury high-rise condominium complex and that this optimism leads to an initial subjective probability assessment of 0.8 that demand will be strong (S1) and a corresponding probability of 0.2 that demand will be weak (S2). Assume the decision alternative to build the large condominium complex was found to be optimal using the expected value approach. Also, a sensitivity analysis was conducted for the payoffs associated with this decision alternative. It was found that the large complex remained optimal as long as the payoff for the strong demand was greater than or equal to $16 million and as long as the payoff for the weak demand was greater…
In a certain California city, projections for the next year are that there is a 20% chance that electronics jobs will increase by 200, a 50% chance that they will increase by 300, and a 30% chance they will decrease by 800. What is the expected change in the number of electronics jobs in that city in the next year?
Problem 4-25 The Gorman Manufacturing Company must decide whether to manufacture a component part at its Milan, Michigan, plant or purchase the component part from a supplier. The resulting profit is dependent upon the demand for the product. The following payoff table shows the projected profit (in thousands of dollars): State of Nature Low Demand Medium Demand High Demand Decision Alternative s1 s2 s3 Manufacture, d1 -20 40 100 Purchase, d2 10 45 70 The state-of-nature probabilities are P(s1) = 0.35, P(s2) = 0.35, and P(s3) = 0.30. Use a decision tree to recommend a decision.Recommended decision: _____________(manufacture component or purchase component) Use EVPI to determine whether Gorman should attempt to obtain a better estimate of demand. _____________(yes or No) EVPI: $ ________________ (fill in the blank) A test market study of the potential demand for the product is expected to report either a favorable (F) or unfavorable (U) condition. The relevant…
A stock market analyst examined the prospects of the shares of a large number of corporations. When the performance of these stocks was investigated one year later, it turned out that 25% performed much better than the market average, 25%, much worse, and the remaining 50%, about the same as the average. Forty percent of the stocks that turned out to do much better than the market were rated good buys by the analyst, as were 20% of those that did about as well as the market and 10% of those that did much worse. What is the probability that a stock rated a good buy by the analyst performed much better than the average?
In general, ___________% of the values in a data set lie at or below the 28 th percentile. _______________ % of the values in a data set lie at or above the 90 th percentile.. If a sample consists of 700 test scores, _________of them would be at or below the 52 th percentile. If a sample consists of 700 test scores, ________ of them would be at or above the 64 th percentile.
52. Consider two securities, the first having μ1 = 1 and σ1 = 0.1, and the secondhaving μ2 = 0.8 and σ2 = 0.12. Suppose that they are negatively correlated,with ρ = −0.8.a. If you could only invest in one security, which one would you choose, andwhy?b. Suppose you invest 50% of your money in each of the two. What is yourexpected return and what is your risk?c. If you invest 80% of your money in security 1 and 20% in security 2, whatis your expected return and your risk?d. Denote the expected return and its standard deviation as functions of π byμ(π ) and σ (π ). The pair (μ(π ), σ (π )) trace out a curve in the plane as πvaries from 0 to 1. Plot this curve.e. Repeat b–d if the correlation is ρ = 0.1
A researcher wishes to study the relationship between education and income separately for individuals who have college degrees, and for those who don't. To this end, he interviews 100 individuals in each category. Survey results are listed in the table below. non college graduates college graduates avg education 13 yr 18 yr std. dev. education 2 yr 1.2 yr Sxx 396 yr2 143 yr2 Avg. Income $67,200 $84,950 std. dev. income $9,400 $10,500 correlation coefficient .25 .15 a. Use the data above to find point estimates for regression coefficients B0NG and B1NG for non-college graduates and BoG and B1G for college graduates. b. Propose an unbiased estimator for the difference theta=B1G - B1NG in slope coefficients for the two sub-populations, and show that B(theta hat)= 0. c. Assume that the error terms ENG and EG for non-graduates and graduates, respectively, are both distributed normally, with known standard deviation oENG = oEG = $ 10,000. In that case, determine the…
In a Bernoulli process with success rate .4, if we consider the total number of successes X which happened on trials 7,9,15,16, 23, and if Y is the total number of successes on trials 15,23, 32,38, 43, then what is the covariance of X with Y?
Question 6: I am teaching my ten year old daughter about the stock market. She “invests” $10 with me. I toss 2 coins. If both are tails, I pay her back $20. If one is heads and one is tails, I pay her back $5. If both are heads, I pay her nothing. What is her expected payoff? What is the variance of her payoff?
The marketing department of a soft drink company wishes to determine the best investment level (Low, High) for introducing a new crystal-clear drink. The payoffs depending on market share for the two decision alternatives is given below: Market Share Investment Level < 1% 1% - 4% > 4% Low 300,000 400,000 500,000 High -400,000 300,000 3,000,000 The probability for a market share less than 1% is 0.3 and the probability for a market share more than 4% is 0.2. a) To minimize the maximum regret, which investment level should the department choose? b) To maximize expected values, which investment level should the department choose? c) What is the maximum amount the department should spend to get more information about the possible market share?
As these researchers state, “Robbing a bank is the staple crime of thrillers, movies and newspapers. But . . . bank robbery is not all it is cracked up to be.” The researchers concentrated on the factors that determine the amount of proceeds from bank robberies, and thus were able to work out both the economics of attempting one and of preventing one. In particular, the researchers revealed that the return on an average bank robbery per person per raid is modest indeed—so modest that it is not worthwhile for the banks to spend too much money on such preventative measures as fast-rising screens at tellers’ windows. The researchers obtained exclusive data from the British Bankers’ Association. In one aspect of their study, they analyzed the data from a sample of 364 bank raids over a several-year period in the United Kingdom. The following table repeats a portion of Table 1 on page 19 of the article. ariable Mean standar deviation Amount stolen (pounds sterling) 20,330.50 53,510,2…