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Unformatted text preview: Corr(r A , r I )=109.968/(19.96*5.99)=0.92 B) Not independent. C) Not perfectly linear dependent. 2 #3 Solution A) E[r A ]=.70*25+.30*(-15)=13 E[r I ]=.70*10+.30*(-2)=6.4 stdev[r A ]=sqrt(0.70*(25-13)^2+0.30*(-15-13)^2)=18.33 stdev[r I ]=sqrt(0.70*(10-6.4)^2+0.30*(-2-6.4)^2)=5.5 Corr[r A , r I ]=100.8/(18.33*5.5)=1.0 B) Not independent. C) Yes, this is an example of perfect linear dependence. 3 25 3 10 10 25 3 10 12 40 2 15 10 25-= + = = = +-=-+ = b b m m b m b m 3 #4 Solution A) E[r A ]=.35*25+.65*(-15)=-1 E[r I ]=.65*10+.35*(-2)=5.8 Var[r A ]=sqrt(0.35*(25-(-1))^2+0.65*(-15-(-1))^2)=19.09 Var[r I ]=sqrt(0.65*(10-5.8)^2+0.35*(-2-5.8)^2)=5.72 Corr[r A , r I ]=-85.2/(19.09*5.72)=-0.7803 B) Not independent. C) Not perfectly linear dependent. 4...
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- Fall '10
- BrianBoyer
- Index fund, 2m, Ri, 12m, 10M
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