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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 WalMart Duke
0.0568
0.0193
0.0037 Microsoft
0.0193
0.2420
0.1277 WalMart
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 WalMart 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
XWalMart = = .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.
 Fall '14

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