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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 =

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