The following is a probability distribution for returns on two securities A and M: ...
70.2K
Verified Solution
Link Copied!
Question
Finance
The following is a probability distribution for returns on two securities A and M:
StateProbabilityRARM
1 10% 15% 12%
2 40% 8% 6%
3 40% 4% 1%
4 10% -6% -2%
Calculate the expected returns on securities A and M.
Calculate the variances and the standard deviations of securities A and M.
Calculate the coefficient of variation (CV) for securities A and M. Does A initially seem to be more or less attractive than M? Why? What other consideration might affect your answer and how?
i) What is the probability that the actualized return on security A will be equal or less than zero in the coming investment period?
ii) What is the probability of actually losing 5% or more on security M in the coming investment period?
Calculate the covariance between A and M.
Calculate the correlation coefficient between securities A and M. Verify that the covariance given in part (e) above is equal to the product of the standard deviation of A, standard deviation of M and the correlation coefficient between A and M.
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
