The standard deviation of return on investment A is 19%, while the standard deviation of return on investment B is 14%. If the covariance of returns on A and B is 0.004, the correlation coefficient between the returns on A and B is

Q: Which of the following is a justification framework for the mean-variance approach? a)if trading is…

A: The question is based on the mean-variance approach of portfolio selection. The approach measures…

Q: Suppose you have mean-variance utility function with a coefficient of risk Aversion-0, which stocks…

A: The risk aversion measures the risk preference. In this case, the investor is risk neutral as his…

Q: For a set of positively correlated data, you calculate that 84% of the variation in the dependent…

A: The coefficient of determination (R-squared) represents the proportion of the variation in the…

Q: a covariance of 0.011. If their respective standard deviations are 13% and 22%, what is their…

A: Given, Covariance = 0.011 Standard deviation of security 1 = 13% or 0.13 Standard deviation of…

Q: What is the expected return on a two asset portfolio and what are its variance and standard…

A: Two Asset portfolio: The portfolio that has 2 assets is called as two asset portfolio.

Q: Expected accumulated value for investment A: Expected accumulated value for investment B: Investment…

A: The expected return is a concept in finance that represents the anticipated gain or loss on an…

Q: The expected value, standard deviation of returns, and coefficient below.) Asset A Possible Outcomes…

A: Expected return-The expected return is calculated by multiplying the probability of each possible…

Q: The regression analysis is normally depicted as "y = Ax+ B." What does "A" indicate in the equation?…

A: FOR ANY QUERIES, PING ME     HAPPY LEARNING

Q: Assume that there is a positive linear correlation between the variable R (return rate in percent of…

A: Positive linear correlation:- It is the relationship between two variables where an increase in the…

Q: Year Stock A Stock B 2010 - 6% 25% 2011 17% 5% 2012 6% 4% 2013 - 9% - 2% 2014 4% - 4% 2015 13% 25%

A: A stock is a security that describes the percentage of ownership of a particular company held by an…

Q: For minimum variance portfolio,the weight of Asset A1 Ltd in two asset portfolio ,having correlation…

A:

Q: What is the correlation between returns of stock S and T, given that covariance between stocks is…

A: Given, Covariance = 2.419 Standard deviation =1.23 and 2.21

Q: Which of the following is (are) correct regarding average returns? A B The geometric mean is a…

A: In finance the geometric average return is a way to figure out the rate of return, on an investment…

Q: Which of the following statements is correct?   Select one: a.   Assuming a correlation…

A: The combination of stock will reduce the overall risk of the portfolio but it it depends on the…

Q: Match each term with the best definition or descriptor. NPV is __________ ( a unitless ratio, a…

A: Solution:- Net Present Value (NPV) means the net present value of cash inflows after the deduction…

Q: Which one of the following statements is TRUE? O a. If the distribution of returns for an asset has…

A: The realm of finance and investment is underpinned by an array of mathematical and statistical…

Q: ANZ And BHP have a correlation of .2 Weight of the minimum variance portfolio 0.736 and 0.264.

A: The objective of the question is to understand the relationship between the two stocks, ANZ and BHP,…

Q: Please answer all parts (a-d) with explanations thx.

A: Expected return (ER) refers to the average returns expected to be received on a particular share or…

Q: What is the coefficient of variation (CV) of an asset with expected return 5% and standard deviation…

A: The coefficient of variation is used by investors in determining how much risk or volatility is…

Q: The measures of risk include Geometric Mean Arithmetic Mean Median Variance

A: The risk is very important in the stock market and we must quantify the risk so that it can be…

Q: Suppose the gain from an investment is a normal random variable with mean 2 and standard deviation…

A: VaR=mean-Z*standard deviationLets suppose probability of value at risk is 1%Z score at 99% = 2.326

Q: . Suppose the index model for stocks A and B is estimated with the following results: rA = 2% +…

A: Variance is a statistical measure that quantifies the dispersion or spread of a set of data points…

Q: Over the past 3 years an investment returned 0.16, -0.11, and 0.08. What is the variance of returns?

A: In the given case, the investment returned of the past 3 years are given . So, number of years is 3.…

Q: Assume an investor with the coefficient of risk aversion A=5.5. To maximize her expected utility,…

A: Utility functions are used to measure the risk-reward tradeoff as the maximum return that a person…

Q: 16. What is the total variance of the following portfolio including 2 assets invested in the ratio…

A: Formula to be used: Portfolio variance=(WA2 x σ2A)+(WB2 x σ2B)+ (2 x WA x σA x WB x σB x r) Data…

Q: Given Portfolio 1 Expected Return= 0.15 Portfolio variance = 0.001 Standard Deviation = 0.0316…

A: A portfolio is the combination of various financial assets into one basket with the aim to earn…

Q: The standard deviation of return on investment a is 0.10, while the standard deviation of return on…

A: It is a case of calculation of covariance when the data of standard deviation and correlation…

Q: Find the correlation of assets S and T if the standard deviation of S is 4 and standard deviation of…

A: Correlation is a statistic that helps in measuring the degree to which two variables move in…

Q: Which one of the following best describes an arithmetic average return?

A: Arithmetic average return is the mean of all returns and hence is computed by adding all the returns…

Q: If the standard deviation of stock 'A' is .25, the standard deviation of stock 'B' is .30, and the…

A: Standard deviation of stocks represent risk factors that are existing. Correlation coefficient shows…

Q: Two investments generated the following annual returns: a. What is the average annual return on each…

A: Annual return The return an investor receives from an investment within one fiscal year is called…

Q: The expected annual returns are 15% for investment 1 and 12% for investment 2. The standard…

A: An investor would always analyze the risk and return of all available investment options before…

Q: Interpret your results in (c) above, assuming that the historical average return of 8.5% from the…

A: d) In part c, at a rate of 8.59% the stock is considered to be fairly priced. However, since the…

Q: Consider the following POPULATION of returns: 5%, -4%, -3%, and 12%. What is the standard deviation…

A: Returns 5% -4% -3% 12% 6.50%

Q: If two stocks have variance σ2=16 each, could their covariance be equal to σ12 = 20

A: It has been provided that the value of variance for two stocks is 16 . Thus, the standard deviation…

Q: Suppose two asset returns are described by a two factor model, n- 0% + 11 + 1.8/2 + e 12= -1% + 21 +…

A: Here, Volatility of First Factor is 30% Volatility of Second Factor is 10% Correlation between two…

Q: Suppose the utility function is U = E(r) - 0.5Ao2. Draw the indifference curve corresponding to a…

A: A = 3U = 0.2To draw the indifference curve for an investor with a utility function U = E(r) -…

Q: Calculate the arithmetic average for the following returns: Year Retur Ⓒ 24% O 2.2% 03.1% 0.34%…

A: In order to calculate the geometric mean, we must consider the return at the end of the period due…

Q: The variances of stocks A and B are 1 percentage square and 4 percentage square, respectively. If…

A: Correlation coefficient is a standardized measure of co-movement between two stocks. The correlation…

Q: Suppose that there are four risky assets whose expected returns E(r) and variance- covariance matrix…

A: The solution requires use of excel spreadsheet and the concepts of portfolio management. As required…

Q: Supposing the return from an investment has the following probability distribution   Return…

A: Expected return: The entire amount of money an investor anticipates making or losing on a specific…

Q: 2. The following table gives information on the return and variance of assets A and B, whose…

A: 1. Return and Variance of Assets A and B:   - Asset A: Variance (σ²) = 0.0009, Expected Return…

Q: The internal rate of return equals the rate that yields a profitability index of 1 for an…

A: Internal rate of return is the rate at which the Present Value of Cash inflows is equal to the…

Q: Consider Microsoft Corporation (MSFT) and Meta Platforms, Inc. (META) that have returns variances of…

A: The Standard Deviation is calculated with the help of following formula  Variance of Portfolio…

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.