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- the variance of stock A is .004, the variance of the market .007 and the covariance between the two is .0026. what is the correlation coefficient?If a stock's variance of return is written as σ2, then its standard deviation will be written as:The variances of stocks A and B are 1 percentage square and 4 percentage square, respectively. If the covariance between the two stocks is 0.6 percentage square, what is the correlation? Dont
- 1. Using the following returns, calculate the average returns, the variance, standard deviations, and coefficient of variation for X and Y. Which stock is the least risky? Yr 1 2 3 Rx 12.20 9.65 0.00 6.50 Ry 4 8.00 -2.00 12.50 9.57Suppose the index model for stocks A and B is estimated with the following results: rA = 2% + 0.8RM + eA, rB = 2% + 1.2RM + eB, σM = 20%, and RM = rM − rf . The regression R2 of stocks A and B is 0.40 and 0.30, respectively. Answer the following questions. Total: (a) What is the variance of each stock? (b) What is the firm-specific risk of each stock? (c) What is the covariance between the two stocks?EXAMPLE• Consider the following information:State Probability ABC, Inc. ReturnBoom .25 0.15Normal .50 0.08Slowdown .15 0.04Recession .10 -0.03• What is the expected return?• What is the variance?• What is the standard deviation?
- 3. Suppose the index model for stocks A and B is estimated with the following results:rA = 2% + 0.8RM + eA, rB = 2% + 1.2RM + eB , σM = 20%, and RM = rM − rf . The regressionR2 of stocks A and B is 0.40 and 0.30, respectively. Answer the following questions. (a) What is the variance of each stock? (b) What is the firm-specific risk of each stock? (c) What is the covariance between the two stocks?Suppose you have mean-variance utility function with a coefficient of risk Aversion-0, which stocks are preferred to P. E(r) III IP II IV Standard DeviationIf beta of Stock A with market is 0.72 and and the market variance is 225 , the covariance between A and B is 202.5, beta of stock B with market is a. 1.10 b. 0.81 c. 1.20 d. 1.25
- A probability distribution of possible returns from a share has a variance of 0.0064. What is the standard deviation of this probability distribution? a. 0.08 b. 0.64 c. 8% d. Both (a) and (c)Suppose the index model for stocks A and B is estimated with the following results:rA = 2% + 0.8RM + eA, rB = 2% + 1.2RM + eB , σM = 20%, and RM = rM − rf . The regressionR2 of stocks A and B is 0.40 and 0.30, respectively.(a) What is the variance of each stock? (b) What is the firm-specific risk of each stock? (c) What is the covariance between the two stocks?Calculate the correlation coefficient for the portfolio using the following information: Variance of Stock X 0.08 Variance of Stock Y 0.06 Covariance is 0.05 a. 0.1042 b. 0.7217 c. 0.00024 d. 0.0693