171ahwk3rev_f11

171ahwk3rev_f11 - ARE 171a Fall 2011 Homework 3 (due in...

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ARE 171a Fall 2011 Homework 3 (due in class Monday, Nov. 21) 1. (12) Jennifer’s portfolio consists of three stock holdings, with their portfolio weights shown: Nucor Defense Systems (35%) Vista Travel (40%) Tom’s Toothpaste (25%) These stocks’ returns are affected by the state of international relations, as follows: State of the world Major int’l. hostilities Minor int’l tensions Peaceful relations Prob: 30% 50% 20% Stock: Nucor 40% 14% -6% Vista -20% 12% 18% Tom’s 9% 11% 12% a.(1) Do these stocks’ returns appear to be correlated, and if so, in which direction? (consider each pair of 2, verbal answers only) b. (6)) Find the expected rate of return, standard deviation of return, and coefficient of variation of each stock, if held alone. Which has the highest expected rate of return? Which has the lowest CV? c. (5) Now find the expected rate of return, standard deviation of return, and CV for Jennifer’s portfolio. Is the portfolio’s expected value equal to the weighted average of the 3 stocks’ individual returns? Is the portfolio’s standard deviation equal to the weighted average of the 3 stocks’ individual std. deviations? Show your last 2 answers numerically. (hint, it’s quick and easy to work this problem on a spreadsheet)
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This note was uploaded on 02/27/2012 for the course ARE 171A taught by Professor Whitney during the Fall '08 term at UC Davis.

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171ahwk3rev_f11 - ARE 171a Fall 2011 Homework 3 (due in...

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