Question

Consider the following probability distribution for stocks A and B:

State |
Probability |
Return on Stock A |
Return on Stock B |

1 |
0.10 |
10% |
8% |

2 |
0.20 |
13% |
7% |

3 |
0.20 |
12% |
6% |

4 |
0.30 |
14% |
9% |

5 |
0.20 |
15% |
8% |

The coefficient of correlation between A and B is

(Hint: compute variance and covariance first.)

Group of answer choices

0.47.

none of the above.

0.60.

0.58

1.20.

Answer #1

hence co- rrelation coefficient between A & B = 0.43546

Consider the following probability distribution for stocks C and
D: State Probability Expected Return Stock C Expected Return Stock
D 1 .2 19% -9% 2 .5 11% 14% 3 .2 -16% 26% 4 .1 -30% 40% If you
invest 25% of your money in C and 75% in D, what would be your
portfolio's expected rate of return?
Group of answer choices none of the answers are correct
1. 11.58%
2.14.40%
3.5.93%
4. 9.27%

Consider the following table:
Stock
Fund
Bond Fund
Scenario
Probability
Rate of
Return
Rate of
Return
Severe recession
0.10
?37%
?9%
Mild recession
0.20
?11%
15%
Normal growth
0.35
14%
8%
Boom
0.35
30%
?5%
a. Calculate the values of mean return and
variance for the stock fund. (Do not round intermediate
calculations. Round "Mean return" value to 1 decimal place and
"Variance" to 2 decimal places.)
Mean return =
%
Variance =
b. Calculate the value of the covariance...

Rate of Return if State Occurs
State of Economy
Probability of
State of Economy
Stock A
Stock B
Stock C
Boom
0.30
50.0%
12.0%
20.0%
Average
0.45
15.0%
-5.0%
6.0%
Recession
0.25
-8.0%
2.0%
-3.2%
Your portfolio manager has invested 30% of your money in Stock
A, 50% in Stock B, and the rest in Stock C.
1. What is the correlation coefficient between Stocks B and
C?
2. What is the standard deviation of your portfolio?
Hint: Instead of...

1. The following table shows rates of return for two stocks.
A
B
C
1
Year
Stock A
Stock B
2
1
14%
13%
3
2
-15%
-14%
4
3
-6%
-9%
5
4
5%
28%
6
5
14%
8%
7
6
15%
7%
a. What is the arithmetic average return for stock B?
b. What is the variance for stock B?
c. What is the covariance of returns?
2. The following table shows realized rates of return for two...

Consider the following information:
State Probability Stock A Stock B Stock C
Boom 0.65 0.01 0.16 0.22
Bust 0.35 0.20 -0.06 0.10
What is the expected return on an equally weighted portfolio of
these three stocks? (Hint: Equally means that each stock has the
same weight. Given that there are only 3 stocks, each has a weight
of 1/3) Enter the answer with 4 decimals (e.g. 0.1234).

Suppose that the index model for stocks A and B is estimated
from excess returns with the following results:
?A = 3% + 0.7 RM+ ?A
?B = −2% + 1.2RM + ?A
?A-square= 0.20 ; ?B-square= 0.12,
varianceM = 20% ;
a. What is the standard deviation of each stock?
b. Break down the variance of each stock to the systematic and
firm-specific components.
c. What are the covariance and correlation coefficient between
the two stocks?
d. What is...

Consider the following information:
Rate of Return if State Occurs
State of Economy
Probability of State of Economy
Stock A
Stock B
Recession
0.10
0.06
-0.18
Normal
0.60
0.08
0.16
Boom
0.30
0.16
0.35
Required:
Given that the expected return for Stock A is 10.200%, calculate
the standard deviation for Stock A. (Do not round your
intermediate calculations.)

Consider the following information about three stocks:
State of Economy
Probability of State of Economy
Stock A
Stock B
Stock C
Boom
0.22
0.30
0.42
0.58
Normal
0.46
0.23
0.21
0.19
Bust
0.32
0.01
-0.22
-0.50
a-1.
If your portfolio is invested 25 percent each in A and B and 50
percent in C, what is the portfolio expected return?
a-2.
What is the variance?
a-3.
What is the standard deviation?
b.
If the expected T-bill rate is 4.30 percent,...

You are given the following probability distribution of returns
of two stocks A and B. If you form a portfolio by investing
$750,000 in stock A and $1,250,000 in Stock B, calculate the
expected return of your portfolio.
State of Economy
Probability of State
Return of Stock A
Return of Stock B
Recession
0.10
55%
-20%
Slow Down
0.20
40%
10%
Normal Economy
0.45
10%
15%
Boom
0.25
-20%
40%

Consider the following table:
Stock Fund
Bond Fund
Scenario
Probability
Rate of Return
Rate of Return
Severe recession
0.20
−38%
−12%
Mild recession
0.20
−26.0%
20%
Normal growth
0.35
8%
3%
Boom
0.25
46%
−7%
a. Calculate the values of mean return and
variance for the stock fund. (Do not round intermediate
calculations. Round "Mean return" value to 1 decimal place and
"Variance" to 4 decimal places.)
Mean return
%
Variance
%-Squared
b. Calculate the value of the covariance between...

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