Question

Summary statistics for returns on two stocks X and Y are listed below. Mean Variance Stock...

Summary statistics for returns on two stocks X and Y are listed below.

Mean Variance
Stock X 4.83% 0.005000
Stock Y 3.98% 0.004000

The covariance of returns on stocks X and Y is 0.003700. Consider a portfolio of 40% stock X and 60% stock Y.

What is the variance of portfolio returns?

Please round your answer to six decimal places.

Note that the correct answer will be evaluated based on the full-precision result you would obtain using Excel.

Math   Statistics-And-Probability   
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Homework Answers

Answer #1

Let Wx and Wy be the weightages of X and Y in the portfolio. Using this, the portfolio variance is computed as:

As we want the computations till 6 decimal places using EXCEL, we get it as:

The Formula in EXCEL for the portfolio variance is also given above.

Therefore 0.004016 is the required variance of the portfolio here.

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