What is risk? How Covariance or correlation helps to reduce portfolio risk? Security X and Y...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
What is risk? How Covariance or correlation helps to reduce portfolio risk? Security X and Y have the following probability distributions of expected future returns: I. II. III. IV. Probability 0.30 0.50 0.20 Stock X -09 % 11 18 Calculate the expected rate of return for each stock. Calculate the standard deviation of returns for each stock. Stock Y 22% -7.5 16 Calculate the coefficient of variation for each stock and recommend which one you select if you take only one project. Assume that someone held a portfolio consisting of 45 percent of stock X and 55 percent of stock Y and the correlation between stock X and Y is -0.721. Calculate the expected rate of return and standard deviation for this portfolio. What is risk? How Covariance or correlation helps to reduce portfolio risk? Security X and Y have the following probability distributions of expected future returns: I. II. III. IV. Probability 0.30 0.50 0.20 Stock X -09 % 11 18 Calculate the expected rate of return for each stock. Calculate the standard deviation of returns for each stock. Stock Y 22% -7.5 16 Calculate the coefficient of variation for each stock and recommend which one you select if you take only one project. Assume that someone held a portfolio consisting of 45 percent of stock X and 55 percent of stock Y and the correlation between stock X and Y is -0.721. Calculate the expected rate of return and standard deviation for this portfolio.
Expert Answer:
Answer rating: 100% (QA)
Risk refers to the potential for loss or uncertainty in achieving desired outcomes In the context of investments risk refers to the possibility of losing money or not achieving expected returns Covari... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
Students also viewed these finance questions
-
Refer to the following information: Amount issued $410 million Offered Issued at a price of 101.75% plus accrued interest (proceeds to company 98.717%) through Citi and JPMorgan. Interest 9.50% per...
-
Identify at least three significant assertions, WCGWs and explain how these assertions might be at risk.Develop an audit strategy memo that lists the appropriate audit procedures for each risk of the...
-
Stocks X and Y have the following probability distributions of expected future returns: a. Calculate the expected rate of return for Stock Y, rY (rX = 12%). b. Calculate the standard deviation of...
-
Which of the following statements is true for real gases? Choose all that apply. 1. As attractive forces between molecules increase, deviations from ideal behavior become more apparent at relatively...
-
Why should a company be concerned about a change in future exchange rates if it has already delivered and sold product in a foreign country?
-
How many 7400 inputs can be driven from a 74HCT00 output?
-
A friend wants to invest a \($500\) bonus she received. What would you advise?
-
The Raab Company is expanding its production facilities to include a new product line, a sporty automotive tire rim. Tire rims can now be produced with little labor cost using new computerized...
-
A) Fox Hollow Corp. will pay a year-end dividend of $5.00 per share which is expected to growth at a rate of 5% indefinitely. The discount rate is 10% i) What is the stock currently selling for?...
-
Briefly describe the "production hell" that Elon musk describes in the video. Recalling the seven stages of the New Product Development Process, particularly the product launch stage, what specific...
-
Part A- We have a dataset that shows nutritional information for 30 different breakfast cereals. Here is computer output for a four-variable relationship between Y = Calories and X 1 = Fat, X 2 =...
-
Use the data in the following table, which lists drive-thru order accuracy at popular fast food chains. Assume that orders are randomly selected from those included in the table. Drive-thru...
-
Admission of new partner-Goodwill Method Assume that Partners A and B each report a Capital Account of $225,000. Partner C wants to join the partnership as an equal one-third partner. Because the...
-
A group fitness gym classifies its fitness class attendees by class type and member status. The marketing team has gathered data from a random month, in which there were 2375 class attendees. The...
-
Newborn babies: A study conducted by the Center for Population Economics at the University of Chicago studied the birth weights of 629 babies born in New York. The mean weight was 3206 grams with a...
-
Six months ago you purchased a bond with 14 years remaining until maturity, a coupon rate of 5.00% and a yeild of maturity of 4.00% at the time of purchase. This morning you received a coupon, and...
-
1. True or False. Pitfalls to consider in a statistical test include nonrandom samples, small sample size, and lack of causal links. 2. Because 25 percent of the students in my morning statistics...
-
During the 2012 tax year, Irma incurred the following expenses: Union dues..............................................................$275 Tax return preparation...
-
Phil and Linda are 25-year-old newlyweds and file a joint tax return. Linda is covered by a retirement plan at work, but Phil is not. a. Assuming Phil's wages were $27,000 and Linda's wages were...
-
The following additional information is available for the Dr. Ivan and Irene Incisor family. Ivan and Irene have the following investment income, in addition to that reported in Chapter 1: Dividends...
-
You are offered the opportunity to buy a note for \($12,800.\) The note is certain to pay \($2,000\) at the end of each of the next 10 years. If you buy the note, what rate of interest will you...
-
What is the value of a 15-year annuity that pays \($500\) a year? The annuitys first payment is at the end of year 6 and the annual interest rate is 12 percent for years 1 through 5 and 15 percent...
-
Mark Weinstein has been working on an advanced technology in laser eye surgery. The technology is expected to be available to the medical industry two years from today and will generate annual income...
Study smarter with the SolutionInn App