Question
There are three securities in the market. The following chart shows their possible payoffs: Probability of Outcome: 0.14, 0.36, 0.36, 014 Return on Security 1:
There are three securities in the market. The following chart shows their possible payoffs:
Probability of Outcome: 0.14, 0.36, 0.36, 014
Return on Security 1: 0.196, 0,146, 0.096, 0.046
Return on Security 2: 0.196, 0.096, 0.146, 0.046
Return on Secuirty 3: 0.046, 0.096, 0.146, 0.196
Questions:
a-1: What is the expected return on each security? (Do not round intermediate calculations and enter your answers as percent rounded 2 decimal places.)
a-2: What is the standard deviation of each security? (Do not round intermediate calculations and enter your answers as percent rounded 2 decimal places.)
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 answer to 5 decimal places.)
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.
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.)
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.)
d-1: What is the expected return of a portfolio with half it 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.)
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?
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-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.)
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