{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Solutions to Lab Problems for Chapter 08

# Solutions to Lab Problems for Chapter 08 - Solutions to...

This preview shows page 1. Sign up to view the full content.

This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Solutions to Lab Problems for Chapter 8 19. Section: 8.3 Expected Return and Risk for Portfolios Learning Objective: 8.4 Difficulty: Easy a. The correlation between the stocks is .75 w2 = 1 ­ w1= 1 ­ .35 = .65 σ2p = w21σ12+ w22σ22 +2w1w2ρ σ1 σ2 = (.35)2(.06)2 + (.65)2(.2)2 + 2*.35*.65*.75*.06*.2 = .000441 + .0169 +.004095 = ..021436 σp = 0.1464 The portfolio standard deviation is 14.64% when the correlation is 0.75. b. The correlation between the stocks if –.75 σ2p = w21σ12+ w22σ22 +2w1w2ρ σ1 σ2 = (.35)2(.06)2 + (.65)2(.2)2 + 2*.35*.65*( ­0.75)*.06*.2 = .000441 + .0169 +  ­0.004095 = 0.013246 σp = 11.509 The portfolio standard deviation is 11.51% when the correlation is –0.75. 27. Section: 8.1 Measuring Returns Learning Objective: 8.2 Difficulty: Medium To determine what the recommendation should be, we need to determine the expected price in the future: .35*220+.40*100+.25*140. = \$152. The recommendation should be changed to “buy”– at the current price of \$140, the stock is underpriced. 45. Section: 8.1 Measuring Returns Learning Objective: 8.1 Difficulty: Medium Capital gain = (\$87 ­\$82)×250 = \$1,250 Total dollar return = \$1,250 + \$750 = \$2,000 Percentage return = \$2,000/(\$82×250) = 9.76% 1 ...
View Full Document

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern