Question

Given the following information concerning ASSETS X and Y:

        Possible                                    Returns of Assets

       Outcomes        Probability   X                     Y

             1                     0.10    20.0%              -10.0%

             2                     0.20     -8.0%              10.0%

            3                     0.45     12.0%              12.0%

             4                     0.15     30.0%              14.0%

             5                     0.10     40.0%              16.0%

Variance of Returns                0.02081                        0.00478

            Covariance                                          0.001137

What is the expected return of a portfolio comprised of 30percentof an investor's wealth invested in ASSET X and 70 percentinvested in ASSET Y?

                        a.         12.62 percent               d.         11.36 percent

                        b.         12.20 percent               e.         10.94 percent

                        c.         11.78 percent               

What is the CORRELATION between these two securities?  (Hint: Compute using the short-cut approach; it will save you a lot of time.)

a.         -0.248              d.         0.198

b.         0.254                          e.         0.365

c.         0.114              

What is the standard deviation of a portfolio comprised of 30 percentof an investor's wealth invested in ASSET X and 70 percentinvested in ASSET Y?

                        a.           8.35 percent               d.          6.85 percent

                        b.          9.38 percent               e.          7.48 percent

            c.         10.54 percent               

Answer 1