A person is interested in constructing a portfolio. Two stocks are beingconsidered. Let x = percent return for an investment in stock 1, and y=percent return for an investment in stock 2. The expected return andvariance for stock 1 are E(x) = 8.45% and Var (x) = 25. The expectedreturn and variance for stock 2 are E(y) = 3.20% and Var (y) = 1. Thecovariance between the returns is σxy = -3. a. What is the standard deviation for an investment in stock 1 andfor an investment in stock 2? Using the standard deviation as ameasure of risk, which of these stocks is the riskier investment?b. What is the expected return and standard deviation, in dollars,for a person who invests $500 in stock 1?c. What is the expected percent return and standard deviation for a person who constructs a portfolio by investing 50% in each stock?d. What is the expected percent return and standard deviation for aperson who constructs a portfolio by investing 70% in stock 1 and30% in stock 2?e. Compute the correlation coefficient for x and y and comment onthe relationship between the returns for the two stocks.
Contingency Table
A contingency table can be defined as the visual representation of the relationship between two or more categorical variables that can be evaluated and registered. It is a categorical version of the scatterplot, which is used to investigate the linear relationship between two variables. A contingency table is indeed a type of frequency distribution table that displays two variables at the same time.
Binomial Distribution
Binomial is an algebraic expression of the sum or the difference of two terms. Before knowing about binomial distribution, we must know about the binomial theorem.
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) = 3.20% and Var (y) = 1. The
covariance between the returns is σxy = -3.
a. What is the standard deviation for an investment in stock 1 and
for an investment in stock 2? Using the standard deviation as a
measure of risk, which of these stocks is the riskier investment?
b. What is the expected return and standard deviation, in dollars,
for a person who invests $500 in stock 1?
c. What is the expected percent return and standard deviation for a
person who constructs a portfolio by investing 50% in each stock?
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?
e. Compute the
the relationship between the returns for the two stocks.
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