Dell Apple Expected Value 2.2% 1.7% Volatility 16% 13% [c.f. PSBE case 4.2 with modified numbers] Sadie's portfolio has two securities, Dell stocks and Apple stocks. Let X be the monthly return for Dell from January 1990 to August 2008, and Let Y be the monthly return for Apple during the same time period. Assume the expected values and the volatilities of the monthly returns are And the correlation XY between the two returns is 0.35. a) Write down what is X, Y, X, Y, and XY , respectively. b) Suppose Sadie invested 70% of her fund in Dell and 30% in Apple. Let R1 represent the return on Sadie's portfolio. What was the expected value of monthly returns on Sadie's portfolio? What was the volatility of this portfolio? c) Suppose John, Sadie's friend, invested 30% of his fund in Dell and 70% in Apple. Let R2 be John's portfolio return. What were the expected value and the volatility of John's portfolio returns? Dell Apple Expected Value 2.2% 1.7% Volatility 16% 13% Assume monthly returns are simple random samples (SRS). For d) and e) we take a sample of 30 monthly returns from Sardie's portfolio (i.e. an SRS of size 30). Assume that the mean monthly return based on this sample is Normally distributed. Compute the followings for Sardie's portfolio: d) Compute P(portfolio' s mean return is less than -5%) e) Compute P(portfolio' s mean return is positive)