The expected return on a stock X is said to be E(X)-4% and the variance on...
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The expected return on a stock X is said to be E(X)-4% and the variance on the return V(X) = 0.25 Another stock Y has expetced value and variance E(Y) =6% and V(Y) = 0.49 The correlation between these two stocks' returns are P(X,Y) = 0.3 Say you want to invest in a share q (0 <q < 1) in stock X and the rest (1-q) in stock Y The combined investment has the return: U = qX+(1-q)Y Question: Set q = 0.3 such that U = 0.3X+0.7Y Calculate the expected value and variance of U. How does this compare to the expected value and variance of X and Y respectively? The expected return on a stock X is said to be E(X)-4% and the variance on the return V(X) = 0.25 Another stock Y has expetced value and variance E(Y) =6% and V(Y) = 0.49 The correlation between these two stocks' returns are P(X,Y) = 0.3 Say you want to invest in a share q (0 <q < 1) in stock X and the rest (1-q) in stock Y The combined investment has the return: U = qX+(1-q)Y Question: Set q = 0.3 such that U = 0.3X+0.7Y Calculate the expected value and variance of U. How does this compare to the expected value and variance of X and Y respectively?
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