Answered step by step
Verified Expert Solution
Link Copied!

Question

00
1 Approved Answer

The following table contains monthly retums for Cola Co. and Gas Co. for 2010 (the returns are shown in decimal form, l.e., 0.035 is 3.5%

image text in transcribed
image text in transcribed
The following table contains monthly retums for Cola Co. and Gas Co. for 2010 (the returns are shown 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 volatity (standard deviation) of a portfolio that is 65% investod in Cola Co. stock and 35% invested in Gas Co, stock. Calculate the volablity by: a. Using the formula: Var(Rp)=w12SD(R1)2+w22SD(R2)+2w1w2Corr(R1,R2)SD(R1)SD(R2) The volatility (standard deviation) of the portfolio is K. (Round to two decimal places.) b. Calculating the monthly returns of the portfolio and computing its volatizity directly. The volatiluy (standard deviation) of the portfolio is \%. (Round to two decimal places.) c. How do your resulis compare? (Solect tho best choice below.) A. The portfolio volatility calculated using the Var (R) formula in part (a) is much larger than the portfolio volatilify calculated used the monthly portiolio relums. 8. The portsolio volatily calculated using the Var (Rp) formula in part (a) is much smallor than the portfolio volatity calculated used the monthly portfolio returns. C. The two portfolio volatilites, calculated using the Var (Rp) formula in part (a) and using the monthly portfolio retums, are the same or almost the same. D. This cannot be determined from the information aven. \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}

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Finance questions