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Examples for Risk and Return

# Examples for Risk and Return - first stock has a rate of...

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Example 1: Variance and Standard Deviation Mega Corporation has been operating for 10 years and had the following returns for the past three years: 8%, 12% and 10%. Calculate the variance of the return and the standard deviation of the returns. Example 2: Standard Deviation and Standard Error You have 100 observations of returns that you are using to calculate the average (or expected) return. You’re estimate of the average return is 12%. The variance in the estimates is 16. What is the standard error? Example 3: Portfolio return, a weighted average of individual returns: Let’s say you’re forming a portfolio with three different stocks. You have \$1000 to invest. The

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Unformatted text preview: first stock has a rate of return of 40%, but you can only purchase \$200 worth of this stock. The second stock has a return of 20%, and you can purchase \$300 worth of this stock. The third stock has a return of 10%, and you can purchase \$500 worth of this stock. What is the rate of return of your portfolio? Example 4: Beta If the variance of returns of the market is 400 and the beta of a portfolio is 1.5, and the correlation coefficient between the market and the portfolio is 0.8, calculate the standard deviation of the portfolio:...
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