Chapter_11_12_13_sol

020 answer b explanation a

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

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 95367 0.421657879 Covariance = 0.103446133 Correlation = 0.692664763 Var(Rp) = x12Var(R1) + x22Var(R2) + 2X1X2Cov(R1,R2) = (.50)2(0.125447467) + (.50)2(0.177795367) + 2(.5)(.5)(0.103446133) = 0.118913264 B) C) D) Use the table for the question(s) below. Consider the following covariances between securities: Duke Microsoft Wal-Mart Duke 0.0568 -0.0193 0.0037 Microsoft -0.0193 0.2420 0.1277 Wal-Mart 0.0037 0.1277 0.1413 11) The variance on a portfolio that is made up of a $6000 investments in Duke Energy and a $4000 investment in Wal-Mart stock is closest to: A) .050 B) .045 C) .051 D) -0.020 Answer: B Explanation: A) B) Total invested = $6000 + $4000 = $10,000 $6, 000 XDuke = = .60 $10, 000 $4, 000 XWal-Mart = = .40 $10, 000 Var(Rp) = x12Var(R1) + x22Var(R2) + 2X1X2Cov(R1,R2) = (.60)2(0.0568) + (.40)2(0.1413) + 2(.6)(.4)(0.0037) = 0.0449 C) D) Use the table for the question(s) below. Consider the following returns: Lowes Home Depot Realized Realized Year End Return Return 2000 20.1% -14.6% 2001 72.7% 4.3% 2002 -25.7% -58.1% 2003 56.9% 71.1% 2004 6.7% 17.3% 2005 17.9% 0.9% IBM Realized Return 0.2% -3.2% -27.0% 27.9% -5.1% -11.3% 12) Calculate the correlation between Home Depotʹs and IBMʹs returns. Home Depot IBM Answer: Home Depot IBM Year End 2000 2001 2002 2003 2004 2005 average = Realized Return -14.6% 4.3% -58.1% 71.1% 17.3% 0.9% 3.5% Deviation (RH - RH) (RL - RL) × (RH - RI) -18.1% 0.8% -61.6% 67.6% 13.8% -2.6% Realized Return 0.2% -3.2% -27.0% 27.9% -5.1% -11.3% -3.1% Deviation (RI - RI) 3.3% -0.1% -23.9% 30.9% -2.0% -8.2% -0.00602724 -0.00000833 0.14718262 0.20924394 -0.00281401 0.00212874 Variance = 0.177795367 Stdev = 0.421657879 0.032239975 0.179554936 Covariance = 0.069941142 Correlation = 0.923794031 Var(Port) = 0.087479407 13) Which of the following statements is false? A) The volatility declines as the number of stocks in a portfolio grows. B) An equally weighted portfolio is a portfolio in which the same amount is invested in each stock. C) As the number of stocks in a portfolio grows large, the variance of the portfolio is determined primarily by the average covariance among the stocks. D) When combining stocks into a portfolio that puts positive weight on each...
View Full Document

This document was uploaded on 02/02/2014.

Ask a homework question - tutors are online