Calculate the expected return and standard deviation for S and T. (i) Calculate the covariance and the correlation coefficient between (ii) the returns on S and the returns on T. (iii) Determine a portfolio expected return and standard deviation if two-thirds of the portfolio is invested in S and one third in T.
Calculate the expected return and standard deviation for S and T. (i) Calculate the covariance and the correlation coefficient between (ii) the returns on S and the returns on T. (iii) Determine a portfolio expected return and standard deviation if two-thirds of the portfolio is invested in S and one third in T.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Question 4
a) The returns on shares S and T vary depending on the state of
economic growth.
State of the Probability of Returns on S if
economic
Returns on T if
economic state
economy
economic state
state
Occurs
Оccurs
occurring
%
Вoom
0.15
60
16
Growth
0.70
20
15
Recession
0.15
-20
14
Calculate the expected return
for S and T.
(i)
and standard deviation
(ii)
Calculate the covariance and the correlation coefficient between
the returns on S and the returns on T.
(iii) Determine a portfolio expected return and standard deviation if
two-thirds of the portfolio is invested in S and one third in T.
(iv) Explain the meaning and implications of your results in (i), (ii),
(iii). Would you
investors worried
recommend the portfolio in (iii) to
about
the
effects
of
a
recession
on their returns?
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