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Stat104-Section2-solution

# Stat104-Section2-solution - Stat 104 Section 2 Handout...

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Unformatted text preview: Stat 104, Section 2 Handout Solutions Benny, Thursday, 4:00pm, SC 309 Introduction Name: Benny Zhu Email: [email protected] Office Hours: Thursdays at 8:00pm @ Winthrop D Hall Course Website: my.harvard.edu/k78388 Problem Set #2 is due on Friday, by 4pm. Hand in at lecture or in my box outside of SC- 300 Outline • Association between 2 variables – Scatterplot – Correlation and Covariance • Linear combinations of variables – ie: Var( ax + by ) = a 2 Var( x ) + b 2 Var( y ) + 2 ab Cov( x,y ) • Linear Regression – estimating ( b ,b 1 ) – Prediction – Lurking/Confounding Variables Problems 1. Match the scatterplots with their correlations 1) -.795 B 2) Roughly 0 DE 3) .772 A 4) roughly .5 CF 1 2 2. Here we will analyze a portfolio composed of 40% Treasury Bills (T-Bills) and 60% Stocks. Let r t ,r s ,r p = annual return of T-Bills, stocks, and the composite portfolio, respectively σ t ,σ s ,σ p = standard deviation of annual returns of T-Bills, stocks, and the composite portfolio r t,s = correlation between annual stock and t-bill returns Historically, ( r t ,σ t ) = ( . 052 ,. 029) , ( r s ,σ s ) = ( . 133 ,. 170) ,r s,t =- . 1 a. What is the coefficient of variation of t-bills and stocks? CV t = σ t r t = . 029 . 052 = . 558 CV s = σ s r s = . 17 . 133 = 1 . 28 b. What is the expected return on this investment?...
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Stat104-Section2-solution - Stat 104 Section 2 Handout...

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