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Week8_lab_problems - allocated to X and Y – what is the...

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ECON*2740: Lab Problems, Winter 2011 Week 8 beginning Monday 5 March Course Instructor: David Prescott, Lab Instructors: Neil Verkade ( [email protected] ), Chris Venditti ([email protected]) 1. X and Y are two random variables. ܧሺܺሻൌ1 ൌ1 ,ܧሺܻሻൌ2 ൌ4 ௫௬ ൌ0 .5 1.1 Find the correlation coefficient between X and Y 1.2 Find ܧሺܺ൅ܻሻ ܽ݊݀ ܸܽݎሺܺ ൅ ܻሻ 1.3 Find ܧሺܺെܻሻ ܽ݊݀ ܸܽݎሺܺ െ ܻሻ 1.4 Find ܧሺ2ܺ ൅ 3ܻሻ ܽ݊݀ ܸܽݎሺ2ܺ ൅ 3ܻሻ 1.5 Find ܧሺ2ܺ െ 3ܻሻ ܽ݊݀ ܸܽݎሺ2ܺ െ 3ܻሻ
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Unformatted text preview: allocated to X and Y – what is the expected return on the portfolio? 2.2 The variances of the returns are ߪ ௫ ଶ ൌ 1 ܽ݊݀ ߪ ௬ ଶ ൌ 4 Assuming the investor wants to minimize the riskiness of the portfolio (the variance of the portfolio’s return), what are the shares of stock X and stock Y in the risk ‐ minimizing portfolio? 2.3 What is the variance of the portfolio’s return when the portfolio consists of (a) only stock X (b) only stock Y (c) the risk ‐ minimizing portfolio of stocks X and Y 2.4 Explain intuitively why holding some of the high ‐ risk stock reduces risk below that of a portfolio that consists entirely of the low ‐ risk stock, X...
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