Answered step by step
Verified Expert Solution
Question
1 Approved Answer
begin{tabular}{crr} Month & Cola Co. & Gas Co. hline January & 0.0210 & 0.0280 February & 0.0000 & 0.0050 March & 0.0200
\begin{tabular}{crr} Month & Cola Co. & Gas Co. \\ \hline January & 0.0210 & 0.0280 \\ February & 0.0000 & 0.0050 \\ March & 0.0200 & 0.0180 \\ April & 0.0090 & 0.0280 \\ May & 0.0310 & 0.0840 \\ June & 0.0840 & 0.0460 \\ July & 0.1190 & 0.0820 \\ August & 0.0160 & 0.0460 \\ September & 0.0550 & 0.0300 \\ October & 0.0110 & 0.0140 \\ November & 0.0380 & 0.0290 \\ December & 0.0220 & 0.0740 \\ \hline \end{tabular} The following table contains monthly returns for Cola Co. and Gas Co. for 2010 (the returns are shcwn in decimal form, l.e. 0.035 is 3.5% ). Using this table and the fact that Cola Co: and Gas Co, have a correlation of 0.0969, calculate the volabity (standard deviation) of a portfolio that is 65% investod in Cola Co. stock and 35%. invested in Gas Co. stock. Calculate the volatily by: a. Using the formula: Var(R)=w12SD(R1)2+w22SD(R2)+2w1w2Corr(R1,R2)SD(R1)SD(R2) The volatility (stindard deviation) of the portfolio is K. (Round to two decimal placesi) b. Caiculating the monthly returns of the portfelio and computing its volatility directly. The volatiliy (standard deviation) of the portfolio is \%. (Round to two decimal places.) c. How do your resuls compare? (Select tho best choice below.) A. The portfolio volatility calculated using the Var (Rp) formuta in part (a) is much iarger than the portfolio volatilify calculated used the monthly portiolio relums. 8. The portolio volatity calculated using the Var (Rp) formula in part (a) is much smalior than the portfollo volatity calculated used the monthly portfolio returns. C. The two portfolio volatilities, calculated using the Var (Rp) formuta in part (a) and using the monthly portfolio retums, are the same or almost the same. D. This cannot be detemined from the information qiven
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started