Average return and volatility for each stock

Assignment Help Corporate Finance

Reference no: EM132753901

Question 1: Using the data in the following table, estimate (a) the average return and volatility for each stock, (b) the covariance between the stocks, and (c) the correlation between these two stocks. Year

Year 2004 2005 2006 2007 2008 2009

Stock A -10% 20% 5% -5% 2% 9%

Stock B 21% 7% 30% -3% - 8% 25%

Question 2: Use the data in last problem, consider a portfolio that maintains a 50% weight on stock A and a 50% weight on stock B.

a. What is the return each year of this portfolio?
b. Based on your results from part a, compute the average return and volatility of the portfolio.
c. Show that (i) the average remm of the portfolio is equal to the average of the average returns of the two stocks, and (ii) the volatility of the portfolio equals the same result as from the calculation in Eq. 11.9.
d. Explain why the portfolio has a lower volatility than the average volatility of the two stocks.

Reference no: EM132753901

Questions Cloud

What is the probability of losses exceeding million : The power law parameter, a, is 0.8. What is the probability of losses exceeding (a) $40 million, (b) $80 million, and (c) $200 million?

What unit cost per equivalent unit for ougnitch plastics : What is the unit cost per equivalent unit for conversion costs? Ougnitch Plastics, Inc., manufactures plastic moldings for car seats. Its costing system utilize

Procedures for issue of debenture in malaysia : What are the procedures for issue of debenture in malaysia?

What the balance in his account would be closest to : Alfred withdraws no money from his account, meets all margin calls, and closes his position at the end of Day 4, the balance in his account would be closest to

Average return and volatility for each stock : Estimate the average return and volatility for each stock, (b) the covariance between the stocks, and (c) the correlation between these two stocks

Find the initial deposit : Given this information, determine the initial deposit that has to be made at the start of the first five years at a rate of 4% compounded monthly.

Prepare the journal entries for the transactions : Prepare the journal entries for the following transactions. Explain which accounts are debited/credited and for how much, and then show the journal entry

What is the value of the company current liabilities : If the company has a current assets of P200,000, including inventory of P80,000 and a quick ratio of 2:1, what is the value of the company's current liabilities

Find what is the company current stock price : Total assets of $2,000,000, and 100,000 shares of common stock outstanding. If Benkart's P/E ratio is 12, what is the company's current stock price?

User Account

All Pages