Question 3 (5 parts): Two stocks, X and Y, have expected returns ux = 9% and uy = 7% and with standard deviat ox = 3.5% and oy = 2.5% for those returns. The covariance of the two stock's returns Cov(X, -0.0006. a. What is the correlation, e, of the returns of stocks X and Y? b. What are the expected return and standard deviation of a portfolio which is 25% stock X (the remainder is stock Y)? c. What are the expected return and standard deviation of a portfolio which is 50% stock X (the remainder stock Y)? d. What are the expected return and standard deviation of a portfolio which is 75% stock X (the remainder is stock Y)? e. Which of the portfolios above, either (b), (c), or (d), offers the best combination of risk and return? Briefly explain.
Question 3 (5 parts): Two stocks, X and Y, have expected returns ux = 9% and uy = 7% and with standard deviat ox = 3.5% and oy = 2.5% for those returns. The covariance of the two stock's returns Cov(X, -0.0006. a. What is the correlation, e, of the returns of stocks X and Y? b. What are the expected return and standard deviation of a portfolio which is 25% stock X (the remainder is stock Y)? c. What are the expected return and standard deviation of a portfolio which is 50% stock X (the remainder stock Y)? d. What are the expected return and standard deviation of a portfolio which is 75% stock X (the remainder is stock Y)? e. Which of the portfolios above, either (b), (c), or (d), offers the best combination of risk and return? Briefly explain.
Chapter6: Exponential And Logarithmic Functions
Section6.8: Fitting Exponential Models To Data
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Transcribed Image Text:Question 3 (5 parts):
Two stocks, X and Y, have expected returns ux = 9% and µy = 7% and with standard deviations
ox = 3.5% and oy = 2.5% for those returns. The covariance of the two stock's returns Cov(X, Y) =
-0.0006.
a. What is the correlation, e, of the returns of stocks X and Y?
b. What are the expected return and standard deviation of a portfolio which is 25% stock X
(the remainder is stock Y)?
c. What are the expected return and standard deviation of a portfolio which is 50% stock X
(the remainder stock Y)?
d. What are the expected return and standard deviation of a portfolio which is 75% stock X
(the remainder is stock Y)?
e. Which of the portfolios above, either (b), (c), or (d), offers the best combination of risk and
return? Briefly explain.
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