Create a portfolio using the four stocks and information below: (Do not round in
ID: 2811736 • Letter: C
Question
Create a portfolio using the four stocks and information below:
(Do not round intermediate calculations. Record your answers in decimal form and round your answers to 4 decimal places. Ex. x.xxxx)
What is the variance of A?
What is the variance of B?
What is the variance of C?
What is the variance of D?
What is the Correlation (A,A)?
What is the Correlation (B,B)?
What is the Correlation (C,C)?
What is the Correlation (D,D)?
What is the Covariance (A,A)?
What is the Covariance (A,B)?
What is the Covariance (A,C)?
What is the Covariance (A,D)?
What is the Covariance (B,A)?
What is the Covariance (B,B)?
What is the Covariance (B,C)?
What is the Covariance (B,D)?
What is the Covariance (C,A)?
What is the Covariance (C,B)?
What is the Covariance (C,C)?
What is the Covariance (C,D)?
What is the Covariance (D,A)?
What is the Covariance (D,B)?
What is the Covariance (D,C)?
What is the Covariance (D,D)?
What is the expected return on the portfolio above?
What is the variance on the portfolio above?
What is the standard deviation on the portfolio above?
Expected Return Standard Deviation Weight in Portfolio Stock A 23.00% 16.00% 10.00% Stock B 24.00% 34.00% 11.00% Stock C 8.00% 36.00% 20.00% Stock D 23.00% 14.00% 59.00% ---------------------- ---------------------- ---------------------- ---------------------- Correlation (A,B) 0.1100 ---------------------- ---------------------- Correlation (A,C) 0.4500 ---------------------- ---------------------- Correlation (A,D) 0.3000 ---------------------- ---------------------- Correlation (B,C) 0.4400 ---------------------- ---------------------- Correlation (B,D) 0.0700 ---------------------- ---------------------- Correlation (C,D) 0.6000 ---------------------- ----------------------
Explanation / Answer
Variance = (Standard Deviation)^(2)
Variance of A = (0.16)^2= 0.0256
Variance of B = (0.34)^2= 0.1156
Variance of C = (0.36)^2= 0.1296
Variance of D = (0.14)^2= 0.0196
Correlation between the same asset will always be 1
Correlation of (A,A) =1
Correlation of (B,B) =1
Correlation of (C,C) =1
Correlation of (D,D) =1
Covariance (X,Y)= Correlation of X and Y* Standard deviation X *Standard deviation X
Covariance (AA)= 1*0.16= 0.16
Covariance (AB)= 0.11*0.16*0.34= 0.006
Covariance (AC)= 0.45*0.16*0.36= 0.026
Covariance (AD)= 0.30*0.16*0.14= 0.007
Covariance (BA)= 0.11*0.16*0.34= 0.006
Covariance (BB)= 1*0.34= 0.34
Covariance (BC)= 0.44*0.34*0.36= 0.054
Covariance (BD)= 0.07*0.34*0.14= 0.003
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