A person is interested in constructing a portfolio. Two stocks are being considered. Let x = percent return for an investment in stock 1, and y = percent return for an investment in stock 2. The expected return and variance for stock 1 are E(x) = 8.45% and Var(x) = 25. The expected return and variance for stock 2 are E(y) = 3.40% and Var(y) = 1. The covariance between the returns is σxy = −3. (a) What is the standard deviation (as a percent) for an investment in stock 1? % What is the standard deviation (as a percent) for an investment in stock 2? % Using the standard deviation as a measure of risk, which of these stocks is the riskier investment? An investment in stock 1 ---Select--- would would not be risky compared with an investment in stock 2. (b) What is the expected return and standard deviation, in dollars, for a person who invests $400 in stock 1? expected return$ standard deviation$ (c) What is the expected percent return and standard deviation (as a percent) for a person who constructs a portfolio by investing 50% in each stock? (Round your answer for standard deviation to four decimal places.) expected return %standard deviation % (d) What is the expected percent return and standard deviation for a person who constructs a portfolio by investing 70% in stock 1 and 30% in stock 2? (Round your answer for standard deviation to four decimal places.) expected return %standard deviation % (e) Compute the correlation coefficient for x and y. Comment on the relationship between the returns for the two stocks. There is ---Select--- a strong positive a strong negative not a relationship between the variables.
A person is interested in constructing a portfolio. Two stocks are being considered. Let x = percent return for an investment in stock 1, and y = percent return for an investment in stock 2. The expected return and variance for stock 1 are E(x) = 8.45% and Var(x) = 25. The expected return and variance for stock 2 are E(y) = 3.40% and Var(y) = 1. The covariance between the returns is σxy = −3. (a) What is the standard deviation (as a percent) for an investment in stock 1? % What is the standard deviation (as a percent) for an investment in stock 2? % Using the standard deviation as a measure of risk, which of these stocks is the riskier investment? An investment in stock 1 ---Select--- would would not be risky compared with an investment in stock 2. (b) What is the expected return and standard deviation, in dollars, for a person who invests $400 in stock 1? expected return$ standard deviation$ (c) What is the expected percent return and standard deviation (as a percent) for a person who constructs a portfolio by investing 50% in each stock? (Round your answer for standard deviation to four decimal places.) expected return %standard deviation % (d) What is the expected percent return and standard deviation for a person who constructs a portfolio by investing 70% in stock 1 and 30% in stock 2? (Round your answer for standard deviation to four decimal places.) expected return %standard deviation % (e) Compute the correlation coefficient for x and y. Comment on the relationship between the returns for the two stocks. There is ---Select--- a strong positive a strong negative not a relationship between the variables.
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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Question
A person is interested in constructing a portfolio. Two stocks are being considered. Let
covariance between the returns is
x = percent
return for an investment in stock 1, and
y = percent
return for an investment in stock 2. The expected return and variance for stock 1 are
E(x) = 8.45%
and
Var(x) = 25.
The expected return and variance for stock 2 are
E(y) = 3.40%
and
Var(y) = 1.
The σxy = −3.
(a)
What is the standard deviation (as a percent) for an investment in stock 1?
%
What is the standard deviation (as a percent) for an investment in stock 2?
%
Using the standard deviation as a measure of risk, which of these stocks is the riskier investment?
An investment in stock 1 ---Select--- would would not be risky compared with an investment in stock 2.
(b)
What is the expected return and standard deviation, in dollars, for a person who invests $400 in stock 1?
expected return$ standard deviation$
(c)
What is the expected percent return and standard deviation (as a percent) for a person who constructs a portfolio by investing 50% in each stock? (Round your answer for standard deviation to four decimal places.)
expected return %standard deviation %
(d)
What is the expected percent return and standard deviation for a person who constructs a portfolio by investing 70% in stock 1 and 30% in stock 2? (Round your answer for standard deviation to four decimal places.)
expected return %standard deviation %
(e)
Compute the correlation coefficient for x and y.
Comment on the relationship between the returns for the two stocks.
There is ---Select--- a strong positive a strong negative not a relationship between the variables.
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