Q1.

You own three stocks: 1,000 shares of Apple Computer, 10,000 shares of Cisco Systems, and 5,000 shares of Goldman Sachs. The current share prices and expected returns of Apple, Cisco, and Goldman Sachs are, respectively,

$142,

$22,

$117

and

12%,

10%,

10.5%.

a. What are the portfolio weights of the three stocks in your portfolio?

b. What is the expected return of your portfolio?

c. Suppose the price of Apple stock goes up by $9, Cisco rises by $7, and Goldman Sachs falls by $13. What are the new portfolio weights?

d. Assuming the stocks' expected returns remain the same, what is the expected return of the portfolio at the new prices?

Q2.

Using the data in the following table, estimate

(a)

the average return and volatility for each stock;

(b)

the covariance between the stocks and

(c)

the correlation between these two stocks.

Year	2009	2010	2011	2012	2013	2014
Stock A	10%	12%	3%	1%	2%	12%
Stock B	14%	26%	30%	7%	10%	22%

a. Estimate the average return for each stock.

b. Estimate the covariance between the stocks.

c. Estimate the correlation between these two stocks.