Question

In: Accounting

The following table contains monthly returns for Cola Co. and Gas Co. for 2010 ​(the returns...

The following table contains monthly returns for Cola Co. and Gas Co. for

2010

​(the returns are shown in decimal​ form, i.e., 0.035 is​ 3.5%). Using this table and the fact that Cola Co. and Gas Co. have a correlation of

−0.0969​,

calculate the volatility​ (standard deviation) of a portfolio that is

65%

invested in Cola Co. stock and

35%

invested in Gas Co. stock.

Month   Cola Co   Gas Co
Jan   -0.0210   0.0280
Feb   0.0000   -0.0050
Mar   -0.0200   -0.0180
Apr   0.0090   0.0280
May   -0.0310   0.0840
Jun   -0.0840   -0.0460
Jul   -0.1190   0.0820
Aug   -0.0160   0.0460
Sep   0.0550   0.0300
Oct   -0.0110   0.0140
Nov   -0.0380   0.0290
Dec   -0.0220   0.0740

​(Click the icon to view the monthly​ returns.)

Calculate the volatility​ by:

a.

Using the​ formula:

Var left parenthesis Upper R Subscript p right parenthesis equals w Subscript 1 Superscript 2 Baseline SD left parenthesis Upper R 1 right parenthesis squared plus w Subscript 2 Superscript 2 Baseline SD left parenthesis Upper R 2 right parenthesis plus 2 w 1 w 2 Corr left parenthesis Upper R 1 comma Upper R 2 right parenthesis SD left parenthesis Upper R 1 right parenthesis SD left parenthesis Upper R 2 right parenthesisVarRp=w21SDR12+w22SDR2+2w1w2CorrR1,R2SDR1SDR2.

b.

Calculating the monthly returns of the portfolio and computing its volatility directly.

c.

How do your results​ compare?

a.

Use the formula

Var left parenthesis Upper R Subscript p right parenthesis equals w Subscript 1 Superscript 2 Baseline SD left parenthesis Upper R 1 right parenthesis squared plus w Subscript 2 Superscript 2 Baseline SD left parenthesis Upper R 2 right parenthesis plus 2 w 1 w 2 Corr left parenthesis Upper R 1 comma Upper R 2 right parenthesis SD left parenthesis Upper R 1 right parenthesis SD left parenthesis Upper R 2 right parenthesisVarRp=w21SDR12+w22SDR2+2w1w2CorrR1,R2SDR1SDR2.

The volatility​ (standard deviation) of the portfolio is

nothing​%.

​(Round to two decimal​ places.)

Solutions

Expert Solution

How do your results​ compare?

1 . Results under both scenario will be same

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

1. The following spreadsheet contains monthly returns for Cola Co. and Gas Co. for 2013. Using...
1. The following spreadsheet contains monthly returns for Cola Co. and Gas Co. for 2013. Using these​ data, estimate the average monthly return and the volatility for each stock. Cola Co.    Gas Co. January -0.0990   0.0440 February -0.0160   0.0560 March 0.0420   -0.0130 April -0.0260   -0.0200 May -0.0910   -0.0160 June -0.0820   -0.0380 July 0.1200   0.0470 August -0.0070   0.0040 September -0.0700   -0.0090 October 0.0120    0.0040 November 0.0920   0.1020 December -0.0110   0.0550 The average monthly return for Cola Co. is ___​%....
The following table shows a portion of the monthly returns data (in percent) for 2010–2016 for...
The following table shows a portion of the monthly returns data (in percent) for 2010–2016 for two of Vanguard’s mutual funds: the Vanguard Energy Fund and the Vanguard Healthcare Fund. [You may find it useful to reference the t table.] Date Energy Healthcare Jan-10 -4.89 -0.11 Feb-10 1.6 0.54 Mar-10 2.27 1.37 Apr-10 2.99 -3.84 May-10 -11.6 -5.16 Jun-10 -5.77 -0.52 Jul-10 8.69 1.52 Aug-10 -6.02 -1.08 Sep-10 10.2 8.24 Oct-10 3.85 2.3 Nov-10 2.82 -2.5 Dec-10 5.55 2 Jan-16...
The following table shows a portion of the monthly returns data (in percent) for 2010–2016 for...
The following table shows a portion of the monthly returns data (in percent) for 2010–2016 for two of Vanguard’s mutual funds: the Vanguard Energy Fund and the Vanguard Healthcare Fund. [You may find it useful to reference the t table.] Date Energy Healthcare Jan-10 −4.86 −0.08 Feb-10 1.90 0.56 ⋮ ⋮ ⋮ Dec-16 0.10 −5.30 SOURCE: www.finance.yahoo.com. Click here for the Excel Data File a. Calculate the sample correlation coefficient rxy. (Round intermediate calculations to at least 4 decimal places...
The following shows a portion of the monthly returns data (in percent) for 2010-2016 for two...
The following shows a portion of the monthly returns data (in percent) for 2010-2016 for two of Vanguard's mutual funds: the Vanguard Energy Fund and the Vanguard Healthcare Fund. [You may find it useful to reference the t table.] DATE : ENERGY : HEALTHCARE : (Jan-10, -4.95, -0.19); (Feb-10, 1.8, 0.39); (Mar-10, 2.47, 1.18); (Apr-10, 3.14, -3.8); (May-10, -11.5, -5.09); (Jun-10, -5.95, -0.63); (Jul-10, 8.83, 1.47); (Aug-10, -5.84, -1.1); (Sep-10, 10.13, 8.32); (Oct-10, 3.98, 2.37); (Nov-10, 2.81, -2.41); (Dec-10, 5.71,...
The following table contains the historic returns from a portfolio consisting of large stocks and a...
The following table contains the historic returns from a portfolio consisting of large stocks and a portfolio consisting of long-term Treasury bonds over the last 20 years. T-bills returns represent risk-free returns. Analyze the risk-return trade-off that would have characterized these portfolios. The following dataset is also available in Excel format in Module 3 Resources on Canvas. Returns in the dataset are in percents. For example, 31.33 means 31.33% per year. Year Large Stock Long-Term T-Bonds T-Bills 1997 31.33 11.312...
The following table contains the historic returns from a portfolio consisting of large stocks and a...
The following table contains the historic returns from a portfolio consisting of large stocks and a portfolio consisting of long-term Treasury bonds over the last 20 years. T-bills returns represent risk-free returns. Analyze the risk-return trade-off that would have characterized these portfolios. The following dataset is also available in Excel format in Module 3 Resources on Canvas. Returns in the dataset are in percents. For example, 31.33 means 31.33% per year. Year Large Stock Long-Term T-Bonds T-Bills 1997 31.33 11.312...
The following​ table, contains annual returns for the stocks of ABC Corp. ​(ABC ​) and XYZ...
The following​ table, contains annual returns for the stocks of ABC Corp. ​(ABC ​) and XYZ Corp. ​(XYZ ​). The returns are calculated using​ end-of-year prices​ (adjusted for dividends and stock​ splits). Use the information for ABC Corp. ​(ABC ​) and XYZ Corp. ​(XYZ ​) to create an Excel spreadsheet that calculates the average returns over the​ 10-year period for portfolios comprised of ABC and XYZ using the​ following, respective,​ weightings: (1.0,​ 0.0), (0.9,​ 0.1). The average annual returns over...
SHOW STEPS, FORMULAS, AND EXPLANATIONS a. The following table contains figures on the monthly volume and...
SHOW STEPS, FORMULAS, AND EXPLANATIONS a. The following table contains figures on the monthly volume and unit costs for a random sample of the 16 items from a list of 2,000 inventory items at a health care facility. Develop an A-B-C classification for these items. Item Unit Cost Usage Item Unit Cost Usage K34 $10 200 F99 $20 60 K35 25 600 D45 10 550 K36 36 150 D48 12 90 M10 16 25 D52 15 110 M20 20 80...
The following table contains annual returns for the stocks of ABC Corp. (ABC​) and Company B...
The following table contains annual returns for the stocks of ABC Corp. (ABC​) and Company B (B​). The returns are calculated using​ end-of-year prices​ (adjusted for dividends and stock​ splits). Use the information for ABC Corp. ​(ABC​) and Company B ​(B) to create an Excel spreadsheet that calculates the average returns over the​ 10-year period for portfolios comprised of ABC and B using the​ following, respective,​ weightings: (1.0,​ 0.0), (0.9,​ 0.1), (0.8,​ 0.2), (0.7,​ 0.3), (0.6,​ 0.4), (0.5,​ 0.5), (0.4,​...
A sample of a gas mixture contains the following quantities of three gases. compound mass CO...
A sample of a gas mixture contains the following quantities of three gases. compound mass CO 2.68 g CO2 3.69 g SF6 2.13 g The sample has: volume = 2.50 L temperature = 16.6 °C What is the partial pressure for each gas, in mmHg? What is the total pressure in the flask? CO ___ mmhg CO2 __mmhg SF6 ____ mmHg total ___ mmHg
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT