A person is interested in constructing a portfolio. Two stocks are being considered. Letx = percent return for an investment in stock 1, and y = percent return for an investment instock 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. Thecovariance between the returns is sxy = −3.a. what is the standard deviation for an investment in stock 1 and for an investment instock 2? Using the standard deviation as a measure of risk, which of these stocks isthe 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 constructsa portfolio by investing 50% in each stock?d. what is the expected percent return and standard deviation for a person who constructsa portfolio by investing 70% in stock 1 and 30% in stock 2?
Contingency Table
A contingency table can be defined as the visual representation of the relationship between two or more categorical variables that can be evaluated and registered. It is a categorical version of the scatterplot, which is used to investigate the linear relationship between two variables. A contingency table is indeed a type of frequency distribution table that displays two variables at the same time.
Binomial Distribution
Binomial is an algebraic expression of the sum or the difference of two terms. Before knowing about binomial distribution, we must know about the binomial theorem.
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
covariance between the returns is sxy = −3.
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?
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 7 images
