Homework Answers
17. Correct answer - E: None of the above
Covariance (X,Y) = 0.035
Variance X = 0.09
Variance Y = 0.04
Thus, correlation = 0.035 / (0.09 * 0.04) ^ (1/2)
Correlation = 0.583
20. Correct answer - C: Buy stock X becuase it is underpriced
Required rate of return = Risk free rate + Beta (Market rate of return - Risk free rate)
Required rate of return = 4% + 2 * (12% - 4%)
Required rate of return = 4% + 2 * 8% = 20%
Since, required rate of return (20%) is lower than the offered rate of return (34%), it implies that the stock X is underpriced.
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17. Given the following covariance matrix Stock X Stock Y Stock X 0.09 0.035 Stock Y...
Stocks A and B have the following returns Stock A 0.09 0.06 0.12 0.04 0.09 Stock...
Stocks A and B have the following returns Stock A 0.09 0.06 0.12 0.04 0.09 Stock B 0.04 0.03 0.04 0.02 0.03 2 4 a. What are the expected returns of the two stocks? b. What are the standard deviations of the returns of the two stocks? C. If their correlation is 0.46, what is the expected return and standard deviation of a portfolio of 67% stock A and 33% stock B? a. What are the expected returns of the...
Stocks A and B have the following returns: . Stock A 0.09 0.05 0.14 -0.04 0.09...
Stocks A and B have the following returns: . Stock A 0.09 0.05 0.14 -0.04 0.09 Stock B 0.05 0.01 0.04 0.02 -0.03 a. What are the expected returns of the two stocks? b. What are the standard deviations of the returns of the two stocks? c. If their correlation is 0.42, what is the expected return and standard deviation of a portfolio of 74% stock A and 26% stock B?
Stocks A and B have the following returns: Stock A 0.09 0.04 0.13 Stock B 0.05...
Stocks A and B have the following returns: Stock A 0.09 0.04 0.13 Stock B 0.05 0.03 0.06 0.02 -0.02 4 -0.04 0.09 a. What are the expected returns of the two stocks? b. What are the standard deviations of the returns of the two stocks? C. If their correlation is 0.48, what is the expected return and standard deviation of a portfolio of 64% stock A and 36% stock B?
Q. 34 Part A. Using the dataset below, calculate the covariance and correlation coefficient between X...
Q. 34 Part A. Using the dataset below, calculate the covariance and correlation coefficient between X and Y. For ease, copy and paste the dataset onto your spreadsheet. X Y 21 35 24 27 23 31 30 38 22 36 18 40 20 37 26 28 a.) Covariance = 5.71. Correlation coefficient = -0.32 b.) Covariance = -5. Correlation coefficient = -0.32 c.) Covariance = -5.71. Correlation coefficient = -0.32 d.) None of the above Part B. Refer to the...
A portfolio is comprised of equal weights of two stocks labeled Stock X and Stock Y....
A portfolio is comprised of equal weights of two stocks labeled Stock X and Stock Y. The covariance between Stock X and Stock Y is 0.10. The standard deviation of Stock X is 0.50, and the standard deviation of Stock Y is 0.50. Which of the following comes closest to the correlation coefficient between Stock X and Stock Y? O a. 0.40 b. 0.60 c. 0.00 O d. 0.50 o e. 1.00
3. Suppose the covariance between Y and X is 15, the variance of Y is 25,...
3. Suppose the covariance between Y and X is 15, the variance of Y is 25, and the variance of X is 36. What is the correlation coefficient (r), between Y and X? 4. Compare and contrast covariance between Y and X is 10 and covariance between P and Q is 1,210
4.he sample correlation coefficient between X and Y, rxy Sx/Sx S where S-the covariance between X...
4.he sample correlation coefficient between X and Y, rxy Sx/Sx S where S-the covariance between X and Ys Σ(X-XM) (-Yu)/ n-1 Sx the standard deviation of X and Sy the standard deviation of Y I) If the covariance is positive, the correlation coefficient must be positive: True or False? ii) If the covariance is negative, the correlation coefficient must be positive: True or False? a) ii) The correlation coefficient must lie between 0 and 1. True or False? v)lf the...
Stock A Stock B 1 0.09 0.07 2 0.06 0.03 3 0.13 0.04 4 -0.03 ...
Stock A Stock B 1 0.09 0.07 2 0.06 0.03 3 0.13 0.04 4 -0.03 0.02 5 0.08 -0.04 a. What are the expected returns of the two stocks? b. What are the standard deviations of the returns of the two stocks? c. If their correlation is 0.43, what is the expected return and standard deviation of a portfolio of 62% stock A and 38% stock B?
2. Suppose there are three assets with returns r1, r2, and r3 with the covariance matrix given by...
2. Suppose there are three assets with returns r1, r2, and r3 with the covariance matrix given by: 0.01 r" E(R)0.03 r3 0.09 and Var() Cov(ri, r2) Cov(ri,T3) V(R) Cov(ri,r2) Var(r2) Cov(r2,3) 0.01 0.02-0.02 0.06 0.03 (4) Cov(ri, r3) Cov(r2, Var(ra) -0.02 0.03 0.08 (a) Discuss in detail the different properties of the three assets. (b) Calculate the return and variance of a portfolio in which an investor puts 50% in asset 1 and 50% in asset 2, Hint: In...
1. Consider the following distribution of (X Y) where X and Y ae both binary random...
1. Consider the following distribution of (X Y) where X and Y ae both binary random variables: 1/4 i (a)-(0.0 1/4 if (x, y) (0,0) 1/8 if (r,y) (1,0) Jx3/8 if (r,)- (0,1) ,Y (z, y) = 1/4 if (, ) (11 (a) What is the probability density function of Y? (b) What is the expectation of Y1 (c) What is the variance of Y? (d) What is the standard deviation of Y? (e) Do the same to X. (f)...
Stocks A and B have the following returns Stock A 0.09 0.06 0.12 0.04 0.09 Stock B 0.04 0.03 0.04 0.02 0.03 2 4 a. What are the expected returns of the two stocks? b. What are the standard deviations of the returns of the two stocks? C. If their correlation is 0.46, what is the expected return and standard deviation of a portfolio of 67% stock A and 33% stock B? a. What are the expected returns of the...
Stocks A and B have the following returns: . Stock A 0.09 0.05 0.14 -0.04 0.09 Stock B 0.05 0.01 0.04 0.02 -0.03 a. What are the expected returns of the two stocks? b. What are the standard deviations of the returns of the two stocks? c. If their correlation is 0.42, what is the expected return and standard deviation of a portfolio of 74% stock A and 26% stock B?
Stocks A and B have the following returns: Stock A 0.09 0.04 0.13 Stock B 0.05 0.03 0.06 0.02 -0.02 4 -0.04 0.09 a. What are the expected returns of the two stocks? b. What are the standard deviations of the returns of the two stocks? C. If their correlation is 0.48, what is the expected return and standard deviation of a portfolio of 64% stock A and 36% stock B?
A portfolio is comprised of equal weights of two stocks labeled Stock X and Stock Y. The covariance between Stock X and Stock Y is 0.10. The standard deviation of Stock X is 0.50, and the standard deviation of Stock Y is 0.50. Which of the following comes closest to the correlation coefficient between Stock X and Stock Y? O a. 0.40 b. 0.60 c. 0.00 O d. 0.50 o e. 1.00
3. Suppose the covariance between Y and X is 15, the variance of Y is 25, and the variance of X is 36. What is the correlation coefficient (r), between Y and X? 4. Compare and contrast covariance between Y and X is 10 and covariance between P and Q is 1,210
4.he sample correlation coefficient between X and Y, rxy Sx/Sx S where S-the covariance between X and Ys Σ(X-XM) (-Yu)/ n-1 Sx the standard deviation of X and Sy the standard deviation of Y I) If the covariance is positive, the correlation coefficient must be positive: True or False? ii) If the covariance is negative, the correlation coefficient must be positive: True or False? a) ii) The correlation coefficient must lie between 0 and 1. True or False? v)lf the...
2. Suppose there are three assets with returns r1, r2, and r3 with the covariance matrix given by: 0.01 r" E(R)0.03 r3 0.09 and Var() Cov(ri, r2) Cov(ri,T3) V(R) Cov(ri,r2) Var(r2) Cov(r2,3) 0.01 0.02-0.02 0.06 0.03 (4) Cov(ri, r3) Cov(r2, Var(ra) -0.02 0.03 0.08 (a) Discuss in detail the different properties of the three assets. (b) Calculate the return and variance of a portfolio in which an investor puts 50% in asset 1 and 50% in asset 2, Hint: In...
1. Consider the following distribution of (X Y) where X and Y ae both binary random variables: 1/4 i (a)-(0.0 1/4 if (x, y) (0,0) 1/8 if (r,y) (1,0) Jx3/8 if (r,)- (0,1) ,Y (z, y) = 1/4 if (, ) (11 (a) What is the probability density function of Y? (b) What is the expectation of Y1 (c) What is the variance of Y? (d) What is the standard deviation of Y? (e) Do the same to X. (f)...
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