Chapter_11_12_13_sol

# 020 answer b explanation a

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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...
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## This document was uploaded on 02/02/2014.

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