Use the end of year price, dividend data (dividend paid during year), and annual returns provided below for the common stocks of Norvell and Napier to respond to questions 1 through 6. It is okay to use your calculator when generating the answers. Just include the equations that you use, and make sure that you are able to do these calculations on the exam. Norvell Napier Date Close Price Dividend Annual Return (%) Annual 12/31/2018 24.00 Close Price 26.00 Dividend Return (%) 12/31/2019 31.63 0.92 35.63 28.14 0.86 11.54 12/31/2020 26.88 1.12 -11.48 34.47 0.98 25.98 12/31/2021 35.26 1.32 36.09 44.25 1.10 31.56 12/31/2022 32.65 1.52 -3.09 39.07 1.22 -8.95 12/31/2023 36.84 1.72 18.10 40.56 1.34 7.24 Estimated = Norvell - 21.84% Estimated = 16.04% Napier 3. Compute the covariance between the returns of Norvell stock and Napier stock. 4. Now compute the correlation between the Norvell and Napier stocks and indicate how this relates to the covariance in question 2. 5. You must now compute the standard deviation of the annual returns on the portfolio described in question 1 using two methods. For question 5, use the actual annual returns of the equally weighted portfolio calculated in question 1 to calculate the portfolio standard deviation. 6. For question 6, use the equation for the variance of a 2-asset portfolio that includes the security weights, the variances of each of the securities, and the covariance between the returns of the two securities. How do your answers compare?
Use the end of year price, dividend data (dividend paid during year), and annual returns provided below for the common stocks of Norvell and Napier to respond to questions 1 through 6. It is okay to use your calculator when generating the answers. Just include the equations that you use, and make sure that you are able to do these calculations on the exam. Norvell Napier Date Close Price Dividend Annual Return (%) Annual 12/31/2018 24.00 Close Price 26.00 Dividend Return (%) 12/31/2019 31.63 0.92 35.63 28.14 0.86 11.54 12/31/2020 26.88 1.12 -11.48 34.47 0.98 25.98 12/31/2021 35.26 1.32 36.09 44.25 1.10 31.56 12/31/2022 32.65 1.52 -3.09 39.07 1.22 -8.95 12/31/2023 36.84 1.72 18.10 40.56 1.34 7.24 Estimated = Norvell - 21.84% Estimated = 16.04% Napier 3. Compute the covariance between the returns of Norvell stock and Napier stock. 4. Now compute the correlation between the Norvell and Napier stocks and indicate how this relates to the covariance in question 2. 5. You must now compute the standard deviation of the annual returns on the portfolio described in question 1 using two methods. For question 5, use the actual annual returns of the equally weighted portfolio calculated in question 1 to calculate the portfolio standard deviation. 6. For question 6, use the equation for the variance of a 2-asset portfolio that includes the security weights, the variances of each of the securities, and the covariance between the returns of the two securities. How do your answers compare?
Chapter1: Financial Statements And Business Decisions
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