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Problem 6-03 The following are the monthly rates of return for Madison Cookies and for Sophie...
Problem 6-03
The following are the monthly rates of return for Madison Cookies and for Sophie Electric during a six-month period.
| Month | Madison Cookies | Sophie Electric | ||
| 1 | -0.02 | 0.06 | ||
| 2 | 0.06 | -0.02 | ||
| 3 | -0.07 | -0.10 | ||
| 4 | 0.09 | 0.18 | ||
| 5 | -0.02 | -0.06 | ||
| 6 | 0.05 | 0.02 | ||
Compute the following. Do not round intermediate calculations. Round your answers to four decimal places.
- Average monthly rate of return R̅i for each
stock.
Madison Cookies:
Sophie Electric:
- Standard deviation of returns for each stock.
Madison Cookies:
Sophie Electric:
- Covariance between the rates of return.
- The correlation coefficient between the rates of return.
Would these two stocks be good choices for diversification? Why or why not?
Madison Cookies and Sophie Electric are (Select-good, bad) choices for diversification as these assets have (Select-high positive, high negative, low positive, low negative) correlation.
Solutions
Expert Solution
Please refer to below spreadsheet for calculation and answer. Cell reference also provided.
Cell reference -
jeff jeffy answered 2 years agoRelated Solutions
The following are the monthly rates of return for Madison Cookies and for Sophie Electric during...
The following are the monthly rates of return for Madison
Cookies and for Sophie Electric during a six-month period:
Month Madison Cookies Sophie Electric
1 -0.06 0.05
2 0.04 -0.02
3 -0.07 -0.07
4 0.14 0.16
5 -0.03 -0.08
6 0.06 0.03
Compute the following. Do not round intermediate calculations.
Round your answers to four decimal places.
A. Average monthly rate of return R̅i for each stock.
B. Standard deviation of returns for each stock.
C. Covariance between the rates...
Problem 6-13 Historical Realized Rates of Return Stocks A and B have the following historical returns:...
Problem 6-13
Historical Realized Rates of Return
Stocks A and B have the following historical returns:
Year
2012
-22.60%
-15.90%
2013
32.50
18.60
2014
17.75
28.30
2015
-2.50
-13.50
2016
31.75
39.40
Calculate the average rate of return for each stock during the
5-year period. Round your answers to two decimal places.
Stock A
%
Stock B
%
Assume that someone held a portfolio consisting of 50% of Stock
A and 50% of Stock B. What would have been the...
Problem 6-13 Historical Realized Rates of Return Stocks A and B have the following historical returns:...
Problem 6-13
Historical Realized Rates of Return
Stocks A and B have the following historical returns:
Year
2012
-23.50%
-14.60%
2013
29.75
21.40
2014
10.50
25.40
2015
-1.75
-7.50
2016
32.50
22.80
Calculate the average rate of return for each stock during the
5-year period. Round your answers to two decimal places.
Stock A
%
Stock B
%
Assume that someone held a portfolio consisting of 50% of Stock
A and 50% of Stock B. What would have been the...
Problem 6-13 Historical Realized Rates of Return Stocks A and B have the following historical returns:...
Problem 6-13
Historical Realized Rates of Return
Stocks A and B have the following historical returns:
Year
2012
-18.30%
-15.70%
2013
34.50
24.80
2014
15.00
26.00
2015
-4.25
-12.10
2016
32.25
36.20
Calculate the average rate of return for each stock during the
5-year period. Round your answers to two decimal places.
Stock A
%
Stock B
%
Assume that someone held a portfolio consisting of 50% of Stock
A and 50% of Stock B. What would have been the...
Problem 11-03 An investor with a required return of 14 percent for very risky investments in...
Problem 11-03
An investor with a required return of 14 percent for very risky
investments in common stock has analyzed three firms and must
decide which, if any, to purchase. The information is as
follows:
Firm
A
B
C
Current earnings
$
2.20
$
3.30
$
7.30
Current dividend
$
1.20
$
2.50
$
8.20
Expected annual growth rate in
6
%
2
%
-3
%
dividends and earnings
Current market price
$
19
$
25
$
48
Stock A:...
Problem: Cactus Cookies incurred the following costs this month to manufacture 1,000 jumbo chocolate chip cookies....
Problem: Cactus Cookies incurred the following costs this month
to manufacture 1,000 jumbo chocolate chip cookies. Chocolate chips
$750 Flour $2,200 Butter $48 Sugar $300 Other ingredients $27 Labor
wages $300 Rent on manufacturing space $2500 Utilities (paid at a
monthly rate) $520 Depreciation on kitchen equipment $880
Advertising $1000 Machine maintenance costs $500 President salary
$2000
Calculate each of the following:
The total Direct Material costs this month
The total Direct Labor costs this month
The total Overhead costs...
Consider the information below relating to the monthly rates of return for two companies X and...
Consider the information below relating to the monthly rates of
return for two companies X and Y over a period of 4 months:
Y
xRate of return
yRate of
Return
Date
Month 1
-4.76
-4.75
Month 2
5.34
7.65
Month 3
12.09
6.98
Month 4
-2.98
9.65
Calculate the covariance per month between the two companies.
Show all your working.
If a firm increases its financial risk by selling a large bond
issue that increases...
Problem 15-03 (Algorithmic) Consider the following time series data. Week 1 2 3 4 5 6...
Problem 15-03 (Algorithmic) Consider the following time series
data.
Week 1 2 3 4 5 6
Value 20 13 15 11 18 13
Using the naïve method (most recent value) as the forecast for
the next week, compute the following measures of forecast accuracy:
Mean absolute error (MAE) Mean squared error (MSE) Mean absolute
percentage error (MAPE) Round your answers to two decimal
places.
MAE =
MSE =
MAPE =
Using the average of all the historical data as a...
Problem 15-03 (Algorithmic) Consider the following time series data. Week 1 2 3 4 5 6...
Problem 15-03 (Algorithmic)
Consider the following time series data.
Week 1 2 3 4 5 6
Value 19 14 15 11 19 15
Using the naïve method (most recent value) as the forecast for
the next week, compute the following measures of forecast
accuracy:
a. Mean absolute error (MAE)
b. Mean squared error (MSE)
c. Mean absolute percentage error (MAPE)
Round your answers to two decimal places.
MAE =
MSE =
MAPE =
Using the average of all the historical...
The following are annual rates of return on AT&T Inc. overfive years.Year Return (%)...
The following are annual rates of return on AT&T Inc. over
five years.Year Return (%)2014 (-4.23)2015 (-1.2)2016 (9.54)2017 (16.92)2018 (-11.17)a. What is the arithmetic average return for AT&T Inc.?
1.97b. What is the geometric average return for AT&T Inc.?
1.48Enter your answers as a percent rounded to two decimal places.
Do not put the % sign.
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