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Discussion
31/03/2022
Fin- correlation related multiple problems
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Q1Based on the following information: |
|
State of Economy |
Probability of |
Rate of Return |
|
Depression |
.12 |
−.103 |
|
Recession |
.23 |
.061 |
|
Normal |
.47 |
.132 |
|
Boom |
.18 |
.213 |
|
Calculate the expected return. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |
|
Expected return |
[removed] % |
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Calculate the standard deviation. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |
|
Standard deviation |
[removed] % |
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Q2.Consider the following information: |
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|
Rate of Return if State Occurs |
|||||||||||
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State of |
Probability of |
|||||||||||
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Economy |
State of Economy |
Stock A |
Stock B |
Stock C |
||||||||
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Boom |
|
.15 |
|
|
.37 |
|
|
.47 |
|
|
.27 |
|
|
Good |
.45 |
.22 |
.18 |
.11 |
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Poor |
.35 |
− |
.04 |
− |
.07 |
− |
.05 |
|||||
|
Bust |
.05 |
− |
.18 |
− |
.22 |
− |
.08 |
|||||
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a. |
Your portfolio is invested 20 percent each in A and C, and 60 percent in B. What is the expected return of the portfolio? (Do not round intermediate calculations and round your answer to 2 decimal places. (e.g., 32.16)) |
|
Expected return |
[removed] % |
|
b–1. |
What is the variance of this portfolio? (Do not round intermediate calculations and round your answer to 5 decimal places. (e.g., 32.16161)) |
|
Variance |
[removed] |
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b–2. |
What is the standard deviation? (Do not round intermediate calculations and round your answer to 2 decimal places. (e.g., 32.16)) |
|
Standard deviation |
[removed] % |
Q3.Stock Y has a beta of 1.8 and an expected return of 18.2 percent. Stock Z has a beta of 0.8 and an expected return of 9.6 percent. If the risk-free rate is 5.2 percent and the market risk premium is 6.7 percent, the reward-to-risk ratios for stocks Y and Z are [removed] and [removed] percent, respectively. Since the SML reward-to-risk is [removed] percent
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Q4. Based on the following information: |
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State of |
Return on |
Return on |
|
Bear |
.107 |
−.050 |
|
Normal |
.110 |
.153 |
|
Bull |
.078 |
.238 |
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Assume each state of the economy is equally likely to happen. |
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Calculate the expected return of each of the following stocks. (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16)) |
|
Expected return |
|
|
Stock A |
[removed]% |
|
Stock B |
[removed]% |
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Calculate the standard deviation of each of the following stocks. (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16)) |
|
Standard deviation |
|
|
Stock A |
[removed]% |
|
Stock B |
[removed]% |
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What is the covariance between the returns of the two stocks? (Negative amount should be indicated by a minus sign, Do not round intermediate calculation and round your final answer to 6 decimal places. (e.g., 32.161616)) |
|
Covariance |
[removed] |
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What is the correlation between the returns of the two stocks? (Negative amount should be indicated by a minus sign, Do not round intermediate calculation round your final answer to 4 decimal places. (e.g., 32.1616)) |
|
Correlation |
[removed] |
