Purchase Solution

9.8 and 10.2 : Calculate the covariance and correlation between the returns on the two stocks.

Not what you're looking for?

Ask Custom Question

9.8 Using the returns for the period 1981 to 1985 listed below, calculate the five-year holding period return on the S&P 500 index.

1981 1982 1983 1984 1985
S&P 500 index return(%) -4.97 21.67 22.57 6.19 31.85

10.2. Suppose you have invested only in two stocks, A and B. The returns on the two stocks depend on the following three states of the economy, which are equally likely to happen.

State of Return on Return on
Economy Stock A (%) Stock B (%)

Bear 6.30 -3.70
Normal 10.50 6.40
Bull 15.60 25.30

a. Calculate the expected return on each stock.
b. Calculate the standard deviation of returns on each stock
Calculate the covariance and correlation between the returns on the two stocks.

Purchase this Solution

Solution Summary

The expert examines the returns on covariance and correlation between the return on stocks.

Solution Preview

Please see the attached file.

9.8 Using the returns for the period 1981 to 1985 listed below, calculate the five-year holding period return on the S&P 500 index.

1981 1982 1983 1984 1985
S&P 500 index return(%) -4.97 21.67 22.57 6.19 31.85

To calculate the holding period return we need to take the geometric mean (GM)
GM = ...

Purchase this Solution


Free BrainMass Quizzes
Lean your Process

This quiz will help you understand the basic concepts of Lean.

Managing the Older Worker

This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce

Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

Paradigms and Frameworks of Management Research

This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.

Organizational Behavior (OB)

The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.