Question
In: Finance
Given the returns and probabilities for the three possible states listed here, calculate the covariance between...
Given the returns and probabilities for the three possible states listed here, calculate the covariance between the returns of Stock A and Stock B. For convenience, assume that the expected returns of Stock A and Stock B are 0.11 and 0.15, respectively. (Round your answer to 4 decimal places. For example .1244)
|
Probability |
Return(A) |
Return(B) |
|
|
Good |
0.35 |
0.30 |
0.50 |
|
OK |
0.50 |
0.10 |
0.10 |
|
Poor |
0.15 |
-0.25 |
-0.30 |
Solutions
Expert Solution
Covariance = √ probability × (return of A - expected return of A) (return of B - expected return of B)
= √ 0.35 (0.30 - 0.11)(0.50 - 0.15) + 0.50 (0.10 - 0.11) (0.10 - 0.15) + 0.15 (-0.25 - 0.11) (-0.30 - 0.15)
= √ 0.35 (0.19) (0.35) + 0.50 (-0.01) (-0.05) + 0.15 (-0.36) (-0.45)
= √ 0.35 (0.0665) + 0.50 (0.0005) + 0.15 (0.162)
= √ 0.023275 + 0.00025 + 0.0243
= √ 0.047825
= 0.2187
jeff jeffy answered 2 years agoRelated Solutions
Given the returns and probabilities for the three possible states listed here, calculate the covariance between...
Given the returns and probabilities for the three possible
states listed here, calculate the covariance between the returns of
Stock A and Stock B. For convenience, assume that the expected
returns of Stock A and Stock B are 0.09 and 0.16, respectively.
(Round your answer to 4 decimal places. For example .1244)
Probability
Return(A)
Return(B)
Good
0.35
0.30
0.50
OK
0.50
0.10
0.10
Poor
0.15
-0.25
-0.30
Given the returns and probabilities for the three possible states listed below, calculate the covariance between...
Given the returns and probabilities for the three possible
states listed below, calculate the covariance between the returns
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Given the returns and probabilities for the three possible states listed below, calculate the covariance between...
Given the returns and probabilities for the three possible
states listed below, calculate the covariance between the returns
of Stock A and Stock B. For convenience, assume that the expected
returns of Stock A and Stock B are 10.00 percent and 16.00 percent,
respectively. (Round answer to 4 decimal places, e.g. 0.0768.)
Probability Return on Stock A Return on Stock B Good 0.35 0.30 0.50
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Given the returns and probabilities for the three possiblestates listed here, calculate the covariance between...
Given the returns and probabilities for the three possible states listed here, calculate the covariance between the returns of Stock A and Stock B. For convenience, assume that the expected returns of Stock A and Stock B are 0.12 and 0.15, respectively. (Round your answer to 4 decimal places. For example .1244) Probability Return(A) Return(B) Good 0.35 0.30 0.50 OK 0.50 0.10 0.10 Poor 0.15 -0.25 -0.30
Possible outcomes for three investment alternatives and their probabilities of occurrence are given next. Alternative...
Possible outcomes for three investment alternatives and their
probabilities of occurrence are given
next.
Alternative 1
Alternative 2
Alternative 3
Outcomes
Probability
Outcomes
Probability
Outcomes
Probability
Failure
60
.20
70
.20
80
.20
Acceptable
60
.40
220
.40
250
.60
Successful
130
.40
240
.40
415
.20
Using the coefficient of variation, rank the three alternatives in
terms of risk from lowest to highest. (Do not round
intermediate calculations. Round your answers to 3 decimal
places.)
Consider three scenarios with the probabilities given below. Let the returns on two different stocks in...
Consider three scenarios with the probabilities given below. Let
the returns on two different stocks in these scenarios be as
follows: Scenario Probability return K1 return K2 ω1 0.2 −10% −30%
ω2 0.5 0% 20% ω3 0.3 10% 50% If a portfolio has 60% of funds
invested in stock 1 and 40% of funds invested in stock 2, find the
risk σV for this portfolio. (Need explanation not just
spreadsheet)
Explain Key Statistical Relationships between Covariance and Correlation of Returns
Explain Key Statistical Relationships between Covariance and
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Consider the following three investments. Listed are the possible returns on each. For simplicity we’ll assume...
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the possible returns on each. For simplicity we’ll assume that
there are only three possibilities, and that they are equally
likely.
Probability
Asset M
Asset I
Asset A
1/3
30%
-18%
39%
1/3
-15%
34%
-24%
1/3
18%
5%
18%
What is the expected return on each asset?
What is the expected return on a portfolio with 50% of funds in
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What is the expected return on a...
Possible outcomes for three investment alternatives and their probabilities of occurrence are given next. Alternative 1...
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probabilities of occurrence are given
next.
Alternative 1
Alternative 2
Alternative 3
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Probability
Outcomes
Probability
Outcomes
Probability
Failure
40
0.20
70
0.20
75
0.40
Acceptable
80
0.20
140
0.20
255
0.40
Successful
135
0.60
205
0.60
405
0.20
Using the coefficient of variation, rank the three alternatives in
terms of risk from lowest to highest. (Do not round
intermediate calculations. Round your answers to 3 decimal
places.)
Q1) Possible outcomes for three investment alternatives and their probabilities of occurrence are given next. Alternative...
Q1)
Possible outcomes for three investment alternatives and their
probabilities of occurrence are given
next.
Alternative 1
Alternative 2
Alternative 3
Outcomes
Probability
Outcomes
Probability
Outcomes
Probability
Failure
50
0.40
70
0.20
85
0.40
Acceptable
80
0.20
130
0.40
325
0.40
Successful
135
0.40
265
0.40
410
0.20
Using the coefficient of variation, rank the three alternatives
in terms of risk from lowest to highest. (Do not round
intermediate calculations. Round your answers to 3 decimal
places.)
Q2)
Highland Mining...
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