Homework Answers
Problem 1
The Formula for Variance is w2A*σ2(RA) + w2B*σ2(RB) + 2*(wA)*(wB)*Cov(RA, RB)
A represents Stock 1 and B represents Stock 2
therefore 0.2*0.2*10 + 0.8*0.8*20 + 2*0.2*0.8*5
Answer = 14.8
Problem 2 a
Answer is NO
Covariance is a measure of the degree to which returns on two risky assets move in tandem.A negative covariance means returns move inversely.
Correlation, in the finance and investment industries, is a statistic that measures the degree to which two securities move in relation to each other either in Upward or Downward Direction.
Therefore it is not neccesary that a Negavtive Correlation will have a Negative Covariance
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Problem 1: What is the variance of a portfolio with: w1-02, w2 =0.8, σ12-10, σ22-20, and...
Problem 1: What is the variance of a portfolio with: w1 =0.2, w2 =0.8, σ12 =10,...
Problem 1: What is the variance of a portfolio with: w1 =0.2, w2
=0.8, σ12 =10, σ22 =20,
and σ12 =5.
Problem 2: a) If the stocks 1 and 2 have negative correlation
12 then their covariance σ12 is
also negative. Yes, no, uncertain. Explain. b) If stocks 1 and 2
are uncorrelated, i.e.
12=0 then their covariance is zero, Yes, no,
uncertain. Explain c) If stocks 1 and 2 have variance
σ2=16 each, could their covariance be equal to...
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Problem 10-15 Comprehensive Variance Analysis [LO10-1, LO10-2, LO10-3] Miller Toy Company manufactures a plastic swimmi...
Problem 10-15 Comprehensive Variance Analysis [LO10-1, LO10-2, LO10-3] Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. The plant has been experiencing problems as shown by its June contribution format income statement below: Flexible Actual Budget $ 265,000 $ 265,000 Sales (6,000 pools) Variable expenses: Variable cost of goods sold* Variable selling expenses Total variable expenses Contribution margin Fixed expenses: Manufacturing overhead Selling and administrative Total fixed expenses Net operating income (loss) 95,580 14,000 109,580 155,420 112,700...
Problem 1: What is the variance of a portfolio with: w1 =0.2, w2
=0.8, σ12 =10, σ22 =20,
and σ12 =5.
Problem 2: a) If the stocks 1 and 2 have negative correlation
12 then their covariance σ12 is
also negative. Yes, no, uncertain. Explain. b) If stocks 1 and 2
are uncorrelated, i.e.
12=0 then their covariance is zero, Yes, no,
uncertain. Explain c) If stocks 1 and 2 have variance
σ2=16 each, could their covariance be equal to...
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Problem 6-10 Portfolio Required Return Suppose you manage a $4.37 million fund that consists of four stocks with th following investments: Investment Stock Beta A $240,000 1.50 В 700,000 -0.50 980,000 1.25 D 2,450,000 0.75 If the market's required rate of return is 10% and the risk-free rate is 5%, what is the fund's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places. % mework Problem 11-06 New-Project Analysis The Campbell Company is...
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