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FINA 412
Assignment 2
Each question carries 1 mark
Write your final answers on paper and hand them in class. Drop off your
Excel worksheets in the drop box on First Class.
I.
You wish to form a portfolio using 5 stocks whose returns are normally distributed
with the following means and standard deviations. Given below are also the
mean and standard deviation of market returns and the correlation of returns
among the stocks and the market.
Mean
Standard Deviation
Market
12%
20%
Stock A
25%
40%
Stock B
22%
35%
Stock C
18%
25%
Stock D
10%
15%
Stock E
6%
4%
The correlation of returns among the 5 stocks and the market are as follows:
Market
Stock A
Stock B
Stock C
Stock D
Stock E
Market
1
Stock A
0.85
1
Stock B
0.80
0.70
1
Stock C
0.75
0.65
0.70
1
Stock D
0.40
0.30
0.20
0.20
1
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View Full DocumentStock E
0.20
0.10
0.10
0.10
0.40
1
Set the number of iterations to 10,000 and sampling method to Latin
Hypercube.
1. Suppose you form a portfolio using stocks A to E using weights 0.4, 0.3,
0.2, 0.05, and 0.05 respectively. What is the expected return on your
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 Spring '11
 acc101

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