Question

e. Calculate the risk for stock B. (2 marks) f. Calculate the risk for the TSX. (2 marks) g. Calculate the covariance and correlation of the returns for stock A and stock B. (2 marks) h. Calculate the covariance and correlation of the returns for stock A and the TSX. (2 marks)

Answer 1

lle) Calculation of Risk or Standered deviation of B Expected Return of Stock B .-9.8.X0:3+12).X0•4 + 20%X0-3 = - 4.7% + 4.8.). + 6./. = 8.10% Standered deviation E (Return - Expected Rerum) XP (r-Ev) XP (P) State (Ret-Er) Return Er 87.72.. 18.10). 17. 10% 8.30 -90%. Boom Normal 0.40 12.1. 8.10% 3.90% 6.084% 42.4834. 0.30 Recession 11.90.1. 20% 8.10% GEB) 136-287/ Std deviation 136.2874 = 1.67% (8) Calculation of Stangered deviation of TSXCY_Ev ) XP State Returns Er (Ret-Er) 18.1. 6.4% 11.6% 0.30 40. 368 Boom 0.40 5.184 80.688 -16.4% 0.30 3.6% Normal 6.4./. 107. Recension - 104. 6.4.%. 6.4% -16.44 2 PTSX 126.24 1C Scanned with CamScanner

(16-12.9 x 0.40 = 5.184 SD (o) 126.24 V. - 11.04.1. Calculation of Covariance of Returns for Stock A & B. COV(A,B) (-Exa)*(ro-Erg) XP Expected Return of Stoc B = 8.10%. Expected return of A 30%X0:3 + 16.6X0.4+-104 X0-30 97.76.44% +(34) = 1.4.). Calculation of COVCA, B) - 90.288 Boom 5.616 . ( 30.6. – 18.47.) (-9%. - 8.10./.) 0.3 Normal = (167.-12.44.) x (191.-8.10..7x0.4 = Recernon = (-104.-12-44.7x6204. – 8-10 4.)*0.3 = -71.968 - 164.64 COVCA, B) calculation of Standered deviation of Stock A 2 Boom (30-12.4), x 0.30 92.928 150.528 2 48.64 TCA) CSScanned with CamScanner

Standerd eleviareon Of Stock(A) SDA JA 248.641 15.768.). or 15.77.4 Calculation of Correlation between A, AB VAB COV (A,B) TAX GB = -164.64 15.77 X 11.67 - 164.64 = -8947 or 0.89 184.02 (6) Calculation of covenance between Stock A, 4 TSX 61.240 Cov(A, TSx) = (17.60x1166) * 0.3 = 5. 184 (3.60 x 3.6) Xooy (-22.4 - 16.4)X0-3 = -45).63 - 385.20 COVCA, TSX) Correlation (A,Tsx) COVCA, TSX) TA X OTSX - 385-20 15.77x11.24 -2.17 - Scanned with CamScanner