Question
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
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 | .194 | .194 | .044 |
2 | .34 | .144 | .094 | .094 |
3 | .34 | .094 | .144 | .144 |
4 | .16 | .044 | .044 | .194 |
a-1. | What is the expected return of each security? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Security 1- ____% Security 2- ____% Security 3- ____% |
a-2. | What is the standard deviation of each security? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Security 1- ____% Security 2- _____% Security 3- ______% |
b-1. | What are the covariances between the pairs of securities? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 5 decimal places, e.g., 32.16162.) Security 1 & 2- ____% Security 1 & 3- ____% Security 2 & 3- ____% |
b-2. | What are the correlations between the pairs of securities? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.) 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 and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) 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 and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) 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 and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) 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.) 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 and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) 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 and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Security 2 & 3- ____% |
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