1. Investments: A financial analyst has concluded that the stock of company #1, has an expected return E (X) = 5% and variance of the return V (X) = 0.36, while company #2, another stock, has ar expected return E (Y) = 7% and variance V (Y) = 0.64. The correlation between these two stock returns is p (X, Y) = 0.2. The financial analyst will invest a portion (0
1. Investments: A financial analyst has concluded that the stock of company #1, has an expected return E (X) = 5% and variance of the return V (X) = 0.36, while company #2, another stock, has ar expected return E (Y) = 7% and variance V (Y) = 0.64. The correlation between these two stock returns is p (X, Y) = 0.2. The financial analyst will invest a portion (0
MATLAB: An Introduction with Applications
6th Edition
ISBN:9781119256830
Author:Amos Gilat
Publisher:Amos Gilat
Chapter1: Starting With Matlab
Section: Chapter Questions
Problem 1P
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1a)

Transcribed Image Text:1. Investments: A financial analyst has concluded that the stock of company #1, has an expected
return E (X) = 5% and variance of the return V (X) = 0.36, while company #2, another stock, has an
expected return E (Y) = 7% and variance V (Y) = 0.64. The correlation between these two stock
returns is p (X, Y) = 0.2. The financial analyst will invest a portion (0 <q <1) in company 1 shares and
the rest (1-q) in company 2 shares. The combined investment therefore has a return:
U =qX+ (1-q)Y
(a) Set q = 0.4 such that U = 0.4X + 0.6Y. Calculate the expectation and variance of U. How are these
compared to the expectation and variance of each of X and Y?
Hint: Look at the formula for V(i=₁ a¡Xi).
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