Volatility (Standard Deviation)Correlation withMicrosoftHPAlaska AirSouthwest AirlinesFord MotorKelloggGeneral MillsMicrosoft33%1.000.390.210.240.270.050.08HP37%0.391.000.280.350.270.110.06Alaska SouthwestAirAirlines37%31%0.210.281.000.390.150.150.200.240.350.391.000.300.150.22FordMotor Kellogg50%20%0.270.270.150.301.000.180.060.050.110.150.150.181.000.54a. What is the covariance between Microsoft and HP?b. What is the covariance between General Mills and Ford?c. What is the volatility of a portfolio with equal amounts invested in Microsoft andHewlett-Packard stock?GeneralMills17%0.080.060.200.220.060.541.00d.What is the volatility of a portfolio with equal amounts invested in Microsoft and AlaskaAir Stock?

Volatility of several stocks have been given. The correlation matrix between them has also been…

Volatility (Standard Deviation) Correlation with Microsoft HP Alaska Air Southwest Airlines Ford Motor Kellogg General Mills Microsoft 33% 1.00 0.39 0.21 0.24 0.27 0.05 0.08 HP 37% 0.39 1.00 0.28 0.35 0.27 0.11 0.06 Alaska Air 37% 0.21 0.28 1.00 0.39 0.15 0.15 0.20 Southwest Ford Airlines Motor 31% 50% 0.24 0.35 0.39 1.00 0.30 0.15 0.22 0.27 0.27 0.15 0.30 1.00 0.18 0.06 Kellogg 20% 0.05 0.11 0.15 0.15 0.18 1.00 0.54 a. What is the covariance between Microsoft and HP? b. What is the covariance between General Mills and Ford? c. What is the volatility of a portfolio with equal amounts invested in Microsoft and Hewlett-Packard stock? General Mills 17% 0.08 0.06 0.20 0.22 0.06 0.54 1.00 d. What is the volatility of a portfolio with equal amounts invested in Microsoft and Alaska Air Stock?

Volatility (Standard Deviation) Correlation with Microsoft HP Alaska Air Southwest Airlines Ford Motor Kellogg General Mills Microsoft 33% 1.00 0.39 0.21 0.24 0.27 0.05 0.08 HP 37% 0.39 1.00 0.28 0.35 0.27 0.11 0.06 Alaska Air 37% 0.21 0.28 1.00 0.39 0.15 0.15 0.20 Southwest Ford Airlines Motor 31% 50% 0.24 0.35 0.39 1.00 0.30 0.15 0.22 0.27 0.27 0.15 0.30 1.00 0.18 0.06 Kellogg 20% 0.05 0.11 0.15 0.15 0.18 1.00 0.54 a. What is the covariance between Microsoft and HP? b. What is the covariance between General Mills and Ford? c. What is the volatility of a portfolio with equal amounts invested in Microsoft and Hewlett-Packard stock? General Mills 17% 0.08 0.06 0.20 0.22 0.06 0.54 1.00 d. What is the volatility of a portfolio with equal amounts invested in Microsoft and Alaska Air Stock?

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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Concept explainers

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.

Question

100%

Volatility (Standard Deviation)
Correlation with
Microsoft
HP
Alaska Air
Southwest Airlines
Ford Motor
Kellogg
General Mills
Microsoft
33%
1.00
0.39
0.21
0.24
0.27
0.05
0.08
HP
37%
0.39
1.00
0.28
0.35
0.27
0.11
0.06
Alaska Southwest
Air
Airlines
37%
31%
0.21
0.28
1.00
0.39
0.15
0.15
0.20
0.24
0.35
0.39
1.00
0.30
0.15
0.22
Ford
Motor Kellogg
50%
20%
0.27
0.27
0.15
0.30
1.00
0.18
0.06
0.05
0.11
0.15
0.15
0.18
1.00
0.54
a. What is the covariance between Microsoft and HP?
b. What is the covariance between General Mills and Ford?
c. What is the volatility of a portfolio with equal amounts invested in Microsoft and
Hewlett-Packard stock?
General
Mills
17%
0.08
0.06
0.20
0.22
0.06
0.54
1.00
d.
What is the volatility of a portfolio with equal amounts invested in Microsoft and Alaska
Air Stock?

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