Question

6. The covariance of the market's returns with a the stock's return is 0.008. The standard deviation of the market's returns is 0.08 and the standard deviation of the stock's returns is 0.11. What is the correlation coefficient of the returns of the stock and the returns of the market? 7. A portfolio is composed of two stocks, A and B. Stock A has a standard deviation of return of 35%, while stock B has a standard deviation of return of 15%. The correlation coefficient between the returns on A and B is .45. Stock A comprises 40% of the portfolio, while stock B comprises 60% of the portfolio. The standard deviation of the return on this portfolio is 8. The standard deviation of return on investment A is 10%, while the standard deviation of return on investment B is 4%. If the correlation coefficient between the returns on A and B is - 50, the covariance of returns on A and B is

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Answer 1

в с D E F G H I J K Note: Correl - Covariance (a,b)/[ (SD(a) *SD(b) ] 6 COV(MS) SD(M) SD(S). Correl 0.008 0.08 0.11 0.91 7 A Weight 35% 40% 15% 60% 0.45 Correl SD(P) 18.11% 8 SD 10% 4% -0.5 Correl COV(A,B) -0.005 27

Note: Correl - Covar 00 ou + WNA COV(MS) SD(M) SD(S) Correl 0.008 0.08 0.11 =D4/(D5*D6) 9 10 Weight 0.4 SD 0.35 0.15 0.45 Correl 12 13 14 15 SD(P) =SQRT(D10*D10*E10*E10+D11*111*111*E11+2*D12*D10*E10*111*E11*012) SD A 19 0.1 0.04 -0.5 =D20*D18*D18 Correl COV(A,B)