Do bonds reduce the overall risk of an investment portfolio? Let x be a random variable representing annual percent return for Vanguard Total Stock Index (all stocks). Let y be a random variable representing annual return for Vanguard Balanced Index (60% stock and 40% bond). For the past several years, we have the following data. x: 13 0 22 38 20 35 11 −20 −9 −24 y: 21 −5 24 9 14 13 22 −10 −3 −7 (a) Compute Σx, Σx2, Σy, Σy2. Σx Σx2 Σy Σy2 (b) Use the results of part (a) to compute the sample mean, variance, and standard deviation for x and for y. (Round your answers to four decimal places.) x y x s2 s (c) Compute a 75% Chebyshev interval around the mean for x values and also for y values. (Round your answers to two decimal places.) x y Lower Limit Upper Limit Use the intervals to compare the two funds. 75% of the returns for the balanced fund fall within a narrower range than those of the stock fund.75% of the returns for the stock fund fall within a narrower range than those of the balanced fund. 25% of the returns for the balanced fund fall within a narrower range than those of the stock fund.25% of the returns for the stock fund fall within a wider range than those of the balanced fund.

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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Do bonds reduce the overall risk of an investment portfolio? Let x be a random variable representing annual percent return for Vanguard Total Stock Index (all stocks). Let y be a random variable representing annual return for Vanguard Balanced Index (60% stock and 40% bond). For the past several years, we have the following data.

x:	13	0	22	38	20	35	11	−20	−9	−24
y:	21	−5	24	9	14	13	22	−10	−3	−7

(a) Compute Σx, Σx², Σy, Σy².

Σx		Σx²
Σy		Σy²

(b) Use the results of part (a) to compute the sample mean, variance, and standard deviation for x and for y. (Round your answers to four decimal places.)

	x	y
x
s²
s

(c) Compute a 75% Chebyshev interval around the mean for x values and also for y values. (Round your answers to two decimal places.)

	x	y
Lower Limit
Upper Limit

Use the intervals to compare the two funds.

75% of the returns for the balanced fund fall within a narrower range than those of the stock fund.75% of the returns for the stock fund fall within a narrower range than those of the balanced fund. 25% of the returns for the balanced fund fall within a narrower range than those of the stock fund.25% of the returns for the stock fund fall within a wider range than those of the balanced fund.

(d) Compute the coefficient of variation for each fund. (Round your answers to the nearest whole number.)

	x	y
CV	%	%

Use the coefficients of variation to compare the two funds.

For each unit of return, the stock fund has lower risk.For each unit of return, the balanced fund has lower risk. For each unit of return, the funds have equal risk.

If s represents risks and x represents expected return, then s/x can be thought of as a measure of risk per unit of expected return. In this case, why is a smaller CV better? Explain.

A smaller CV is better because it indicates a higher risk per unit of expected return.A smaller CV is better because it indicates a lower risk per unit of expected return.

Definition Definition Measure of central tendency that is the average of a given data set. The mean value is evaluated as the quotient of the sum of all observations by the sample size. The mean, in contrast to a median, is affected by extreme values. Very large or very small values can distract the mean from the center of the data. Arithmetic mean: The most common type of mean is the arithmetic mean. It is evaluated using the formula: μ = 1 N ∑ i = 1 N x i Other types of means are the geometric mean, logarithmic mean, and harmonic mean. Geometric mean: The nth root of the product of n observations from a data set is defined as the geometric mean of the set: G = x 1 x 2 ... x n n Logarithmic mean: The difference of the natural logarithms of the two numbers, divided by the difference between the numbers is the logarithmic mean of the two numbers. The logarithmic mean is used particularly in heat transfer and mass transfer. ln x 2 − ln x 1 x 2 − x 1 Harmonic mean: The inverse of the arithmetic mean of the inverses of all the numbers in a data set is the harmonic mean of the data. 1 1 x 1 + 1 x 2 + ...

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Given:

$x$ is a random variable representing the annual percent return for Vanguard Total Stock Index (all stocks).

$y$ is a random variable representing the annual return for Vanguard Balanced Index (60% stock and 40% bond).

The table with the values of $x$ and $y$ are given below: