Question
In: Finance
Using the data in the following table, answer parts (i) – (v). Year Stock X Stock...
Using the data in the following table, answer parts (i) – (v).
|
Year |
Stock X |
Stock Y |
|
2012 |
-11% |
-5% |
|
2013 |
15% |
25% |
|
2014 |
10% |
15% |
|
2015 |
-5% |
-15% |
|
2016 |
5% |
-5% |
|
2017 |
8% |
-2% |
|
2018 |
7% |
10% |
|
2019 |
5% |
15% |
|
Average return |
||
|
Standard deviation |
||
|
Correlation between Stock X and Stock Y |
0.7567 |
|
- Estimate the average return for each stock.
- Calculate the standard deviation of returns for Stocks X and Y.
- For a portfolio that is 75% weighted in Stock X, and 25% weighted in Stock Y, calculate the expected return of the portfolio.
- Calculate the standard deviation of your portfolio based on the weights of Stocks X and Y stated in part (iii).
- Suppose the correlation between Stocks X and Y has reduced to 0.35, does it increase or reduce the standard deviation of your portfolio based on the weights of Stocks X and Y stated in part (iii). Explain your answer.
Solutions
Expert Solution
i. The average return for stock X, 
is
= 4.25%
The average return for stock Y, 
is
= 4.75%
Hence, the average return for stock X is 4.25 and stock Y is 4.75%.
---------------------------------------------------------------------------------------------------------------------
ii. The standard deviation for stock X, 
is
= 8.362
The standard deviation for stock Y, 
is
= 13.488
Hence, the standard deviation for stock X is 8.362% and stock Y is 13.488%.
------------------------------------------------------------------------------------------------------------------------------------
iii. The expected return of the portfolio, 
is
= 4.375%
Therefore, the expected return of the portfolio is 4.375% .
--------------------------------------------------------------------------------------------------------------------------------
iv. The standard deviation of the portfolio, 
is
= 9.095%
Therefore, the standard deviation of the portfolio is 9.095%
-----------------------------------------------------------------------------------------------------------------------------
v. If the correlation is reduced to 0.35, we compute the standard deviation
= 8.094%
Thus, we can say that when the correlation is reduced to 0.35, the standard deviation of the portfolio is also reduced.
jeff jeffy answered 1 year agoRelated Solutions
Using the following stock data for GRMN and LMT, Answer the following questions. (Show Work). Stock...
Using the following stock data for GRMN and LMT, Answer the
following questions. (Show Work).
Stock
GRMN
LMT
Mean
100.05
99.79
Standard Deviation
1.10
1.47
Sample Size
62
62
a. Calculate the 95% two-sample confidence interval. What can be
determined from this confidence interval. Is the difference in
stock price significantly different from 0?
b. Conduct a two-sample t-test using an alpha value of 0.05.
c. If there was a significant difference between GRMN and LMT,
What is the probability...
Using the data in the following table, estimate the average return and volatility for each stock....
Using the data in the following table, estimate the average
return and volatility for each stock.
Year Stock A Stock b
2008 -5% 15%
2009 19% 31%
2010 10% 4%
2011 -4% .5%
2012 3% -9%
2013 15% 23%
What is the variance of stock a? Stock b?
Use the information for securities X, Y and Z in the table below to answer parts...
Use the information for securities X, Y and Z in the table
below to answer parts a and b.
Security X
Security Y
Security Z
Expected return
8%
8%
17%
Beta
0.7
1.3
2.5
The risk-free rate is 2% and the
expected return of the market portfolio is 8%.
According to the CAPM, are these securities overpriced, fairly
priced or underpriced?
Using the CAPM, calculate the abnormal return of a portfolio
that takes a long position in security X by...
Use the information for securities X, Y and Z in the table below to answer parts...
Use the information for securities X, Y and Z in the table below
to answer parts a and b:
Security X
Security Y
Security Z
Expected return
8%
8%
17%
Beta
0.7
1.3
2.5
The risk-free rate is 2% and the
expected return of the market portfolio is 8%.
According to the CAPM, are these securities overpriced, fairly
priced or underpriced?
Using the CAPM, calculate the abnormal return of a portfolio
that takes a long position in security X by...
Calculate the breakeven point using the following data. Create a table and graph with the answer...
Calculate the breakeven point using the following data.
Create a table and graph with the answer you get.
Fixed Costs:
App Development Costs: $150,000
Marketing Costs: $72,000
Variable Costs:
Average Cost Per Install (CPI) – $2.89 / install
Cost Per Action (CPA): Register – $4.58 / install
CPA: Register: In-app purchase – $102 / install
CPA: Purchase – $40 / install
CPA: Subscribe – $87 / install
Sales Price:
App membership subscription: $10 per person or $5 per
student
Using the data in the following table, 2010 2011 2012 2013 2014 2015 Stock A ...
Using the data in the following table,
2010 2011 2012
2013 2014 2015
Stock A -10% 20% 5%
-5% 2% 9%
Stock B 21% 7% 30%
-3% -8% 25%
consider a portfolio that maintains a 50% weight on stock A and
a 50% weight on stock B.
a. What is the return each year of this portfolio?
b. Based on your results from part (a), compute the average
return and volatility of the portfolio.
The following table contains data for the U.S. balance of payments in a prior year. Answer...
The following table contains data for the U.S. balance of
payments in a prior year. Answer the question on the basis of this
information. All figures are in billions of dollars. U.S. goods
exports +$793 U.S. goods imports -1573 U.S. exports of service +280
U.S. imports of services -222 Net investment income +5 Net
transfers -81 Capital account -5 Foreign purchases of assets in the
U.S. +1198 U.S. purchases of foreign assets -395 Refer to the table
above. The data...
Let V be a Hilbert space. Let f(x) = ∥x∥ for x ∈ V. Using the...
Let V be a Hilbert space. Let f(x) = ∥x∥ for x ∈ V. Using the
definition of Frechet differentiation, show that ∇f(x) = x for all
x ̸= 0. Furthermore, show that f(x) is not Frechet differentiable
at x = 0.
Use the data in the table below to complete parts (a) through (c). X: 5 5...
Use the data in the table below to complete parts (a) through
(c).
X: 5 5 6 9 13 16 18 48
Y: 30 27 18 23 25 20 21 10
A.) Construct a scatterplot of the data.
B.) Indentify any possible outliners.
A.) The point (18,21) may be an outliner.
B.) The point (48,10) may be an outliner
C.) The point (5,27) may be an outliner.
D.) The point (5,30) may be an outliner
E.) There are no outliners....
Use the end-of-year stock price data in the popup window, (data below) to answer the following...
Use the end-of-year stock price data in the popup window,
(data below) to answer the following questions for the Harris and
Pinwheel companies.
a. Compute the annual rates of return for each time period and
for both firms.
b. Calculate both the arithmetic and the geometric mean rates of
return for the entire three-year period using your annual rates of
return from part a. (Note: you may assume that neither firm pays
any dividends.)
c. Compute a three-year rate of...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- A 4-year annuity of eight $9,800 semiannual payments will begin 7 years from now, with the...
- Consider the following relation schema about project meetings: PMG(projID, title, type, manager, jobID, start-date, end-date, contractor,...
- Question 3 a) A coil consist of 2000 turns of copper wire having a cross sectional...
- A 66.5-kg person throws a 0.0500-kg snowball forward with a ground speed of 33.5 m/s. A...
- Use starUML to solve the problems.THX Problem Create a domain model for this system. Virtual Safari...
- You are the managing director of a credit card company. Every new sales agent in your...
- Marco Suarez is starting a new job in the Sales and Marketing Department of a financial...
ADVERTISEMENT