STAT TECH IN BUSINESS & ECON AC
18th Edition
ISBN: 9781264731657
Author: Lind
Publisher: MCG
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Chapter 20, Problem 6E
To determine
Find the expected opportunity losses.
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Two investments, X and Y, have the characteristics shown below.
E(X) = $60, E(Y) = $90, o = 10,000, o? = 17,000 and axy = 6,500
If the weight of portfolio assets assigned to investment X is 0.8, calculate the
a. portfolio expected return and
b. portfolio risk.
a. If the weight of portfolio assets assigned to investment X is 0.8, the portfolio expected return is $
(Type an integer or a decimal.)
b. If the weight of portfolio assets assigned to investment X is 0.8, the portfolio risk is approximately $.
(Round to two decimal places as needed.)
Returns earned over a given time period are called realized returns. Historical data on realized returns is often used to estimate future results. Analysts across companies use realized stock returns to estimate the risk of a stock.
Consider the case of Celestial Crane Cosmetics Inc. (CCC):
Five years of realized returns for CCC are given in the following table. Remember:
1.
While CCC was started 40 years ago, its common stock has been publicly traded for the past 25 years.
2.
The returns on its equity are calculated as arithmetic returns.
3.
The historical returns for CCC for 2014 to 2018 are:
2014
2015
2016
2017
2018
Stock return
18.75%
12.75%
22.50%
31.50%
9.75%
Given the preceding data, the average realized return on CCC’s stock is .
The preceding data series represents of CCC’s historical returns. Based on this conclusion, the standard deviation of CCC’s historical returns is .
If investors expect the…
Investment advisors agree that near-retirees, defined as people aged 55 to 65, should have balanced portfolios. Most advisors suggest that the near-retirees have no more than 50% of their investments in stocks. However, during the huge decline in the stock market in 2008, 15% of near-retirees had 90% or more of their investments in stocks (P. Regnier, “What I Learned from the Crash,” Money, May 2009, p. 114). Suppose you have a random sample of 12 people who would have been labeled as near-retirees in 2008. What is the probability that during 2008:
two or more had 90% or more of their investment in stocks?
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STAT TECH IN BUSINESS & ECON AC
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