Question
The annual returns of three stocks for the past six years are given in the following table: Year Stock X Stock Y Stock Z Stock
- The annual returns of three stocks for the past six years are given in the following table:
| Year | Stock X | Stock Y | Stock Z | Stock M |
| 2011 | 3.50% | 12.00% | 15.00% | 12.00% |
| 2012 | 9.60% | 7.50% | 10.85% | 9.85% |
| 2013 | 10.86% | 16.20% | 9.92% | 10.92% |
| 2014 | 15.00% | 14.76% | 12.30% | 11.30% |
| 2015 | 20.40% | -3.87% | 11.38% | 8.38% |
| 2016 | 8.00% | -1.09% | 8.90% | -6.90% |
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- Determine the average return and the population standard deviation of returns for each stock.
- Calculate the variance/covariance matrix between each pair of stocks.
- Determine the average return and the standard deviation of returns of equally weighted portfolios consisting of three (XYZ, XZM) stocks and four (XYZM) stocks.
- Use the Solver to determine the minimum standard deviation that could be obtained by combining three stocks (XYZ, and XZM), and also all four stocks (XYZM) into a single portfolio. Short sales are allowed, in other words, weights can be negative.
- Calculate the standard deviation of the following portfolios:
| Weights |
| ||
| X | Y | Z | M |
| 45% | 35% | 0.00% | 20% |
| 40% | 30% | 15% | 15% |
| 30% | 25% | 20.00% | 25% |
| 35% | 20% | 15.00% | 30% |
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Small Business Management Launching and Growing New Ventures
Authors: Justin Longenecker, Leo Donlevy, Terri Champion, William Petty, Leslie Palich, Frank Hoy
6th Canadian edition
176532218, 978-0176532215
