Essentials Of Statistics For Business & Economics
9th Edition
ISBN: 9780357045435
Author: David R. Anderson, Dennis J. Sweeney, Thomas A. Williams, Jeffrey D. Camm, James J. Cochran
Publisher: South-Western College Pub
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Textbook Question
Chapter 5.4, Problem 26E
A person is interested in constructing a portfolio. Two stocks are being considered. Let x = percent return for an investment in stock 1, and y = percent return for an investment in stock 2. The expected return and variance for stock 1 are E(x) = 8.45% and Var (x) = 25. The expected return and variance for stock 2 are E(y) = 3.20% and Var (y) = 1. The
- a. What is the standard deviation for an investment in stock 1 and for an investment in stock 2? Using the standard deviation as a measure of risk, which of these stocks is the riskier investment?
- b. What is the expected return and standard deviation, in dollars, for a person who invests $500 in stock 1?
- c. What is the expected percent return and standard deviation for a person who constructs a portfolio by investing 50% in each stock?
- d. What is the expected percent return and standard deviation for a person who constructs a portfolio by investing 70% in stock 1 and 30% in stock 2?
- e. Compute the
correlation coefficient for x and y and comment on the relationship between the returns for the two stocks.
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Chapter 5 Solutions
Essentials Of Statistics For Business & Economics
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