ESSEN OF MOD BUS STAT(LL) W/MIND TAP
7th Edition
ISBN: 9780357195857
Author: Anderson
Publisher: CENGAGE L
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Chapter 5.4, Problem 26E
(a)
To determine
To find: The standard deviations for the investments in stock 1 and stock 2. And, identify the stock that is the riskier investment using the standard deviation.
(b)
To determine
To find: The expected return and standard deviation for a person who is investing $500 in stock 1.
(c)
To determine
To find: The expected percent return and standard deviation for an individual who is constructing a portfolio by having 50% in both the stocks.
(d)
To determine
To find: The expected percent return and standard deviation for an individual who is constructing a portfolio by having 70% in stock 1 and 30% in stock 2.
(e)
To determine
To find: The value of the
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Students have asked these similar questions
3. Let x = percent return for an investment in stock 1 and y = percent return for an
investment in stock 2. The expected return and variance for stock 1 are E(x) = 8.45%
and Var(x) = 25. The expected return and variance for stock 2 are E(y) = 3.2% and
Var(y) = 1. The covariance between the returns is -3. What is the correlation
coefficient for x and y?
%3D
-.8
-.2
-.6
Clearly describe the advantages of portfolio diversification. Suppose, the rates of
return on two stocks X and Y are normally distributed as x = N (10%, 9%) and y = N
(10%, 16%). Assuming that the variance of the diversified portfolio (that has both
stocks X and Y) is V = 6.26 + 6c where c is the correlation between x and y, calculate
the maximum value of c beyond which portfolio diversification is not helpful.
Compute the mean and variance for the linear function W = 2X - 4Y.
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Chapter 5 Solutions
ESSEN OF MOD BUS STAT(LL) W/MIND TAP
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