01004009200142003 200090246mm2 where covxyxy b

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Unformatted text preview: +V(X3)+2Cov(X1X2)+ 2Cov(X2X3)+ 2Cov(X1X3)=0.01+0.04+0.09+2(0.014)+2(0.03)+ 2(0.009)=0.246mm2 where Cov(XY)=ρσXσY ⎛ ⎝ b) P (T < 1.5) = P⎜ Z < 5-93 1.5 − 3 ⎞ ⎟ = P( Z < −6.10) ≅ 0 0.246 ⎠ Let X and Y denote the percentage returns for security one and two respectively. If ½ of the total dollars is invested in each then ½X+ ½Y is the percentage return. E(½X+ ½Y) = 0.05 (or 5 if given in terms of percent) V(½X+ ½Y) = 1/4 V(X)+1/4V(Y)+2(1/2)(1/2)Cov(X,Y) where Cov(XY)=ρσXσY=-0.5(2)(4) = -4 V(½X+ ½Y) = 1/4(4)+1/4(6)-2 = 3 Also, E(X) = 5 and V(X) = 4. Therefore, the strategy that splits between the se...
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This document was uploaded on 02/09/2014.

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