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

1. Consider the following probability distribution
for stocks A and B for questions 1 and 2
STATE Probability Return on Stock
A Return on Stock B
1 0.10 10% 8%
2 0.30 20% 12%
3 0.60 25% 17%
Calculate the Expected return for Stock A and for Stock B
and calculate the variance for both Stock A and for
Stock B.

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
−39%
−12%
Mild recession
0.20
−19%
18%
Normal growth
0.40
24%
11%
Boom
0.30
29%
−8%
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
%-Squared
b. Calculate the value of the covariance...

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...

Consider the following information about Stocks A and B:
Rate of Return if State Occurs
State of
Probability of
Economy
State of Economy
Stock A
Stock B
Recession
0.30
0.10
−
0.25
Normal
0.40
0.17
0.12
Irrational exuberance
0.30
0.11
0.45
The market risk premium is 8 percent, and the risk-free rate is
3 percent. (Round your answers to 2 decimal places. (e.g.,
32.16))
The standard deviation on Stock A's return is ___ percent, and
the Stock A beta...

The following information is available for two stocks: Stock
Shares Price per share Expected Return Standard Deviation A 500 $40
14% 18% B 400 $25 21% 22% You are fully invested in the two stocks.
The correlation coefficient between the two stock returns is
.80
a. Compute the weights of the two stocks in your portfolio.
b. Compute the portfolio expected return.
c. Compute the portfolio standard deviation.
d. You consider selling 250 shares of stock A, and buy with...

Consider the following table:
Stock Fund
Bond Fund
Scenario
Probability
Rate of Return
Rate of Return
Severe recession
0.10
−37%
−10%
Mild recession
0.20
−17%
16%
Normal growth
0.40
22%
9%
Boom
0.30
27%
−6%
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 ???
%-Squared
b. Calculate the value 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...

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...

Problem 6-7
Consider the following table:
Stock Fund
Bond Fund
Scenario
Probability
Rate of Return
Rate of Return
Severe recession
0.10
−34%
−9%
Mild recession
0.20
−20%
5%
Normal growth
0.30
21%
9%
Boom
0.40
36%
6%
a.
Calculate the values of mean return and variance for the stock
fund. (Do not round intermediate calculations. Round...

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