Question
Problem 11-35 Covariance and Portfolio Standard Deviation There are three securities in the market. The following chart shows their possible payoffs: State Probability of Outcome
Problem 11-35 Covariance and Portfolio Standard Deviation
There are three securities in the market. The following chart shows their possible payoffs: |
State | Probability of Outcome | Return on Security 1 | Return on Security 2 | Return on Security 3 |
1 | .16 | .210 | .210 | .060 |
2 | .34 | .160 | .110 | .110 |
3 | .34 | .110 | .160 | .160 |
4 | .16 | .060 | .060 | .210 |
a-1. | What is the expected return of each security? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places (e.g., 32.16).) |
Expected return | |
Security 1 | % |
Security 2 | % |
Security 3 | % |
a-2. | What is the standard deviation of each security? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places (e.g., 32.16).) |
Standard deviation | |
Security 1 | % |
Security 2 | % |
Security 3 | % |
b-1. | What are the covariances between the pairs of securities? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answers to 5 decimal places (e.g., 32.16161).) |
Covariance | |
Security 1 & 2 | |
Security 1 & 3 | |
Security 2 & 3 | |
b-2. | What are the correlations between the pairs of securities? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answers to 4 decimal places (e.g., 32.1616).) |
Correlation | |
Security 1 & 2 | |
Security 1 & 3 | |
Security 2 & 3 | |
c-1. | What is the expected return of a portfolio with half of its funds invested in Security 1 and half in Security 2? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).) |
Expected return | |
Security 1 & 2 | % |
c-2. | What is the standard deviation of a portfolio with half of its funds invested in Security 1 and half in Security 2? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).) |
Standard deviation | |
Security 1 & 2 | % |
d-1. | What is the expected return of a portfolio with half of its funds invested in Security 1 and half in Security 3? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).) |
Expected return | |
Security 1 & 3 | % |
d-2. | What is the standard deviation of a portfolio with half of its funds invested in Security 1 and half in Security 3? (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)) |
Standard deviation | |
Security 1 & 3 | % |
e-1. | What is the expected return of a portfolio with half of its funds invested in Security 2 and half in Security 3? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).) |
Expected return | |
Security 2 & 3 | % |
e-2. | What is the standard deviation of a portfolio with half of its funds invested in Security 2 and half in Security 3? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).) |
Standard deviation | |
Security 2 & 3 | % |
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