VCProblem - X1~'2. .r:;l2- )<2. . ~ 'L...

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QUIZ 1 NAME Assume the following: 1 Probability Return on Stock 1 Return on Stock 2 Return on Stock 3 10% 20 30 0.25 0.35 0.40 4% 4 4 Find the Following: 1. Expected return on Stock 1 7~ 2. Expected return on Stock 2 70 J-r -\- Variance of the Return on Stock 1 3 ~ o~7) ~ 0 ,. 2- .s-(30 -7) -+ ~2- -;:. . 2- 51 l 0 4. Variance of the Return on Stock 2 .2- '4 f-ot -tr)2- 0 .2~(t t)~ + D' 3>(-1-- t-r) +0 l 2- :::"Or; 5. Covariance between the Return on Stock 1 and Stock 2 ..r -tb .--7X4-Jot) 0" z. ..e;-(30 7)l Jr-tY +-O~ 3>Q° ,)[;,-ii) +-fJ i"(l 7=2- 0 0:::: 30% 10 -10
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= Or-Jr 1 o..b --- 1 .0 -- 'xL=- 6. Suppose you form a portfolio consisting of 40% investment in stock 1 and the remaining in stock2. What is the expected return on this portfolio R ) ) +- ;< 2. . Ei CR '"2,,) XI f;( 7) + O'~ 5..2- - - 7. Write the VC matrix for computing the variance of the return on the above portfolio (i.e., in number 6). Do not make any numerical substitutions. ..,.-- -"T).2- : b:- ~ '--J ~ -.x) ~ I ,.x 1 ~ 2.61'). .- 1\ /' {/'2- ,... - ,,>(-~I 2 .z - b. Ih ---, I )t. . I r 2-2-
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Unformatted text preview: X1~'2. .r:;l2- )&lt;2. . ~ 'L '&quot;&quot;, f.~~-- ~ 8. Make numerical substitutions for the different element of the VC matrix in problem (7) and compute the variance of the return on the portfolio f;&quot;-I z.\ Provide the following current numbers Unemployment Rate s.~70 Federal Funds Rate 370. x! &quot;=. t) ~ 3. .s.-X2'=:- 0 . .ro.&gt;-1~_. .Q:Q. 6. Suppose you fonn a portfolio consisting of 35% investment in stock 1 ati~~;;:::-remaining in stock2. What is the expected return on this portfolio % 7 Write the VC matrix for computing the variance of the return on the above portfolio (i.e., in number 6). Do not make any numerical substitutions. ?-----~ 1-O'~~()'bij~) ( o,{,.!:) Co 9. Provide the following current numbers a. Prime Rate ~ ~ t) , b. Federal Funds Rate ) 3/0 .2-8. Make numerical substitutions for the different element of the VC matrix in problem (7) and compute the variance of the return on the portfolio...
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This note was uploaded on 04/05/2011 for the course FIN 320 taught by Professor Yatin during the Winter '07 term at Grand Valley State University.

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VCProblem - X1~'2. .r:;l2- )&amp;amp;lt;2. . ~ 'L...

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