This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
Unformatted text preview: ACTSC 372 Assignment 1 due on January 26, 2007 1. [3 points] Suppose you can invest in two stocks, A and B. The returns R A , R B , on these stocks depend on the state of the economy and are modelled as follows (where returns are expressed in percentages): state probability R A R B Recession 0.258 Normal 0.5 10 14 Boom 0.3 20 21 (a) Compute the expected return for each stock. (b) Compute the standard deviation of the return for each stock. (c) Compute the covariance and correlation between the two stocks. 2. [3 points] Suppose there are N stocks in the economy, each with an expected return of 9% and a standard deviation of the return equal to 12%. The covariance between the returns is the same for all pairs of (distinct) stocks. (a) Suppose N = 100. If an equally weighted portfolio composed of these N = 100 assets has a standard deviation of 9%, what is the covariance between the returns (for distinct pairs of stocks)?...
View
Full
Document
This note was uploaded on 09/18/2011 for the course ACTSC 372 taught by Professor Maryhardy during the Winter '09 term at Waterloo.
 Winter '09
 MARYHARDY

Click to edit the document details