The following table contains monthly returns for Cola Co. and Gas Co. for 2010 (the returns are shown in decimal form, i.e., 0.035 is 3.5%). Using this table and the fact that Cola Co. and Gas Co. have a orrelation of 0.0969, calculate the volatility (standard deviation) of a portfolio that is 65% invested in Cola Co. stock and 35% invested in Gas Co. stock. Calculate the volatility by: a. Using the formula: Var(Rp wSD(R, ) 2 +w2SD(R2) +2w w2 Corr (R1,R2) SD (R,) SD (R2) b. Calculating the monthly returns of the portfolio and computing its volatility directly. c. How do your results compare? a. Using the formula Var(Rp) wSD(R,)2+w2sD(R2) +2w, w2 Corr (R, R2) SD (R,) SD (R2) %. (Round to two decimal places.) The volatility (standard deviation) of the portfolio is b. Calculating the monthly returns of the portfolio and computing its volatility directly. The volatiltiy (standard deviation) of the portfolio is%. (Round to two decimal places.) c. How do your results compare? (Select the best choice below.) O A. The two portfolio volatilities, calculated using the Var(Rp formula in part (a) and using the monthly portfolio returns, are the same or almost the same O B. The portfolio volatility calculated using the Var(Rp formula in part (a) is much smaller than the portfolio volatility calculated used the monthly portfolio returns. The portfolio volatility calculated using the Var(Rp) formula in part (a) is larger than portfolio volatility calculated used the monthly portfolio O D. This cannot be determined from the information given O O Month Cola Co. Gas Co. 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 The following table contains monthly returns for Cola Co. and Gas Co. for 2010 (the returns are shown in decimal form, i.e., 0.035 is 3.5%). Using this table and the fact that Cola Co. and Gas Co. have a orrelation of 0.0969, calculate the volatility (standard deviation) of a portfolio that is 65% invested in Cola Co. stock and 35% invested in Gas Co. stock. Calculate the volatility by: a. Using the formula: Var(Rp wSD(R, ) 2 +w2SD(R2) +2w w2 Corr (R1,R2) SD (R,) SD (R2) b. Calculating the monthly returns of the portfolio and computing its volatility directly. c. How do your results compare? a. Using the formula Var(Rp) wSD(R,)2+w2sD(R2) +2w, w2 Corr (R, R2) SD (R,) SD (R2) %. (Round to two decimal places.) The volatility (standard deviation) of the portfolio is b. Calculating the monthly returns of the portfolio and computing its volatility directly. The volatiltiy (standard deviation) of the portfolio is%. (Round to two decimal places.) c. How do your results compare? (Select the best choice below.) O A. The two portfolio volatilities, calculated using the Var(Rp formula in part (a) and using the monthly portfolio returns, are the same or almost the same O B. The portfolio volatility calculated using the Var(Rp formula in part (a) is much smaller than the portfolio volatility calculated used the monthly portfolio returns. The portfolio volatility calculated using the Var(Rp) formula in part (a) is larger than portfolio volatility calculated used the monthly portfolio O D. This cannot be determined from the information given O O Month Cola Co. Gas Co. 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
