Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. year stock a stock b 2015 3 % 40% 2016 5 % -5% 201

year stock A stock B 2015 3 % 40% 2016 5 % -5% 2017 1 % 30% 2018 10...

50.1K

Verified Solution

Question

Finance

year stock A stock B

2015 3 % 40%

2016 5 % -5%

2017 1 % 30%

2018 10 % -10%

2019 6 % 35 %

(1) Determine the correlation coefficient of returns of stocks Aand B. Can you reduce risk by creating a portfolio of thecombination of both stocks? why or why not?

(2) if you invest 80% of money in stock A and another 20% instock B, calculate expected rate of return and standard deviationof this portfolio. Is this portfolio better than the individualstock A and B? why

Answer & Explanation Solved by verified expert
4.0 Ratings (598 Votes)
YearStock AStock B201534020165520171302018101020196351 Expected Return of Stock A ERA 3511065 5Expected Return of Stock B ERB 4053010355 18If n is the sample size then the variance of the sample iscalculated using below formulawhere Ri is the return in different years and ER isthe expected return as calculated aboveVariance of Stock A A2 143525521521052652A2 000400001600025000014 000115Therefore standard deviation of Stock A A 00011512 003391165 339Variance of Stock B B2    See Answer
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!
Become a Member

Transcribed Image Text

year stock A stock B2015 3 % 40%2016 5 % -5%2017 1 % 30%2018 10 % -10%2019 6 % 35 %(1) Determine the correlation coefficient of returns of stocks Aand B. Can you reduce risk by creating a portfolio of thecombination of both stocks? why or why not?(2) if you invest 80% of money in stock A and another 20% instock B, calculate expected rate of return and standard deviationof this portfolio. Is this portfolio better than the individualstock A and B? why

Other questions asked by students

Q

CAPITAL BUDGETING CRITERIA: ETHICAL CONSIDERATIONS An electric utility is considering a new power plant in northern Arizona. Power...

Finance
Q

Compare and contrast conventional CT with spiral CT in terms of image quality, image acquisition method,...

Physics
Q

A coil is suspended in a uniform magnetic field with the plane of the coil...

Physics
Q

A pizza has a diameter of 16 inches Which is closest to the area of...

Geometry
Q

1 point Why are these triangles similar 1 A O O O O SAS SSS...

Geometry
Q

17 If ASRY AWXQ RT is an altitude of ASRY XV is an altitude of...

Geometry
Q

Consider the following relation.x = -5|y| +5Step 1 of 2: Find four points contained in...

Calculus
Q

According to a summary of thepayrollof Mountain Streaming Co., $120,000 was subject to the 6.0%...

Accounting
Q

A company can be aware of an obligation, but not know how much it will...

Accounting
Q

Apocalyptica Corp. pays a constant $25 dividend on its stock. The company will maintain this...

Finance
Q

How to solve with explanation step by step for required 1-15 Oslo...

Accounting
Q

Bir ABD firmas olan TropiKana Inc., bir talyan meyve ekimi ve ileme tesisinde iyiletirmeler yapmak...

Finance