Assignment:
Answer the following questions
Variance-Covariance Matrix of four securities and the Market portfolio
A
B
C
D
M(Market)
A
0.002116
0.003008
0.001178
0.001346
=RANDBETWEEN(1020)/10000
B
0.003008
0.007427
0.001678
0.002559
0.003751312
C
0.001178
0.001678
0.001662
0.000942
0.001941571
D
0.001346
0.002559
0.000942
0.001324
0.001644396
M(Market)
0.0072036
0.0072036
0.0072036
0.003333333
1. The correlation coefficient matrix is:
Show all your work!
A
B
C
D
M(Market)
A
B
C
D
M(Market)
2. The Beta for each security is:
Beta for security A:
Beta for security B:
Beta for security C:
Beta for security D:
Calculations:
3. The R2 for each security is:
R2 for security A:
R2 for security B:
R2 for security C:
R2 for security D:
Calculations:
4. The Unsystematic risk (?e2) for each security is:
Unsystematic risk for security A:
Unsystematic risk for security B:
Unsystematic risk for security C:
Unsystematic risk for security D:
Calculations:
5. Assuming the Variance-Covariance matrix data in the problem above calculate the Variance of a
portfolio composed of stocks ABC and D assuming weights of your choice for as long as they sum up to 1. For example you may assume:
XA= 0.15 XB= 0.20 XC= 0.40 XD= 0.25
Show all your work!
A
B
C
D
Sum of each row
A
B
C
D
Portfolio Variance =