1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
guajiro [1.7K]
3 years ago
7

Arbor Systems and Gencore stocks both have a volatility of 33%. Compute the volatility of a portfolio with 50% invested in each

stock if the correlation between the stocks is ​(a​) +1.00​, ​(b​) 0.50​, ​(c​) 0.00​, ​(d​) −0.50​, and ​(e​) −1.00.
In which of the cases is the volatility lower than that of the original​ stocks?
Business
1 answer:
fiasKO [112]3 years ago
4 0

Answer:

<h3>In case of b, c, d ,e volatility is less than that of original stock</h3>

Explanation:

The formula to compute the volatility of a portfolio

=\sqrt{W_1^2\sigma_1^2+W_2^2\sigma_2^2+2W_1W_2\sigma_1\sigma_2*c}

Here,

The standard deviation of the first stock is σ₁

The standard deviation of the second stock is σ₂

The weight of the first stock W₁

The weight of the second stock W₂

The correlation between the stock c

a) If the correlation between the stock is +1

=\sqrt{W_1^2\sigma_1^2+W_2^2\sigma_2^2+2W_1W_2\sigma_1\sigma_2*c}

=\sqrt{(0.5\times0.33)^2+(0.5\times0.33)^2+(2\times(0.5\times 0.33)\times(0.5\times0.33)\times1} \\\\=0.33

Hence, the volatility of the portfolio is 0.33 0r 33%

b) If the correlation between the stock is 0.50

=\sqrt{W_1^2\sigma_1^2+W_2^2\sigma_2^2+2W_1W_2\sigma_1\sigma_2*c}

=\sqrt{(0.5\times0.33)^2+(0.5\times0.33)^2+(2\times(0.5\times 0.33)\times(0.5\times0.33)\times0.5} \\\\=0.29

Hence, the volatility of the portfolio is 0.29 0r 29%

c) If the correlation between the stock is 0.00

=\sqrt{W_1^2\sigma_1^2+W_2^2\sigma_2^2+2W_1W_2\sigma_1\sigma_2*c}

=\sqrt{(0.5\times0.33)^2+(0.5\times0.33)^2+(2\times(0.5\times 0.33)\times(0.5\times0.33)\times0.0} \\\\=0.23

Hence, the volatility of the portfolio is 0.23 0r 23%

d) If the correlation between the stock is -0.50

=\sqrt{W_1^2\sigma_1^2+W_2^2\sigma_2^2+2W_1W_2\sigma_1\sigma_2*c}

=\sqrt{(0.5\times0.33)^2+(0.5\times0.33)^2+(2\times(0.5\times 0.33)\times(0.5\times0.33)\times-0.5} \\\\=0.17

Hence, the volatility of the portfolio is 0.17 or 17%

e) If the correlation between the stock is -1

=\sqrt{W_1^2\sigma_1^2+W_2^2\sigma_2^2+2W_1W_2\sigma_1\sigma_2*c}

=\sqrt{(0.5\times0.33)^2+(0.5\times0.33)^2+(2\times(0.5\times 0.33)\times(0.5\times0.33)\times-1} \\\\=0

Hence, the volatility of the portfolio is 0

<h3>In case of b, c, d ,e volatility is less than that of original stock</h3>

You might be interested in
The following selected account balances are provided for Delray Mfg.
Marina CMI [18]

Answer:

                  DELRAY MFG.  

               Income Statement  

For the year ended December 31, 2017  

 

Sales                           $1,250,000

<u>Cost of goods sold       623,840</u>

Gross profit                        626,160

General and

<u>Administrative expenses       129,300</u>

Net Income                    $496,860

 

              DELRAY MFG.  

Statement of Cost of Goods Sold  

For the year December 31, 2017  

 

Raw Material  

Raw material, beginning     $37,000

<u>Add: Purchases                      175,600</u>

Raw materials available    $212,600

<u>Less: Raw material, end        42,700 </u>

Cost of raw material used      169,900

<u>Add: Direct labor                     225,000</u>

Prime Cost                             394,900

<u> Add: Manufacturing overhead       221,090 </u>

Manufacturing cost              615,990

Add: Work in process, beginning    53,900

<u>Less: Work in process, Ending       41,500 </u>

Cost of Goods Manufactured    628,390

Add: Finished goods, beginning      62,750

Cost of goods available for sale     691,140

<u> Less: Finished goods, ending         67,300 </u>

Cost of goods sold         $623,840

Explanation:

Income statement is computed by deducting cost of goods sold from the sales of the period to get the gross profit, then deduct the general and administrative expenses to get the net income for the period.

To compute cost of goods sold it started from the raw materials beginning inventory then add the purchases of the raw materials including the handling cost to get the raw materials available. Then deduct the raw materials end to get the cost of raw material used for the period. Add direct labor to get the prime cost and then add manufacturing overhead to the prime cost to get the manufacturing cost. Lastly, add work in process beginning and deduct the work in process end to get the cost of goods manufactured then add the finished goods beginning to get the cost of goods available for sale. And from there we deduct the finished goods ending inventory to get the cost of goods sold for the period.

6 0
2 years ago
David runs a bed and breakfast in the outskirts of a big city. His employees are allowed to spend up to $200 to resolve any cust
defon

Answer:

Empowerment.

Explanation:

Empowerment: It an authority or power been given to an individual or group of people to perform certain tasks with complete determination. This power has been given so that tasks been performed diligently and smoothly.  

In corporate, individuals been empowered to hold responsibility for certain tasks and prove profitable for the organization.

Similarly, In the given case David has empowered his employee to resolve customer complaints by itself without getting escalated, however, he has limited the power by $200 to resolve any customer complaint.

7 0
3 years ago
The minutes of the Safety Team's April meeting including a header with the meeting name and date. They also include an opening,
azamat
The correct answer is B
4 0
3 years ago
Read 2 more answers
Why do you think researchers sometimes find a positive relationship between the unemployment rate and college enrollment rates?
horsena [70]

Answer:

dhdfhdsfgdhgfdhgdfhghghghcows

Explanation:

4 0
3 years ago
The following cost data pertain to the operations of Montgomery Department Stores, Inc., for the month of July. Corporate legal
deff fn [24]

Answer:

1.$134,000

2.$183,800

3.$124,050

Explanation:

1. Computation for the total amount of the costs that are direct costs of the Apparel Department

Apparel Department cost of sales - Evendale store $116,100

Apparel Department sales commission-Evendale store $7,950

Apparel Department manager's salary-Evendale store $9,950

Total direct costs for the Apparel Department

$134,000

2. Computation for the total amount of the costs that are direct costs of the Evendale Store

Apparel Department cost of sales - Evendale store $116,100

Store managers salary - Evendale store $18,300

Apparel Department sales commission-Evendale store $7,950

Store utilities - Evendale store $17,800

Janitorial costs - Evendale store $13,700

Apparel Department manager's salary-Evendale store $9,950

Total direct cost for the Evendale store $183,800

3. Computation for the total amount of the Apparel Department's direct costs that are variable costs with respect to total departmental sales

Apparel Department cost of sales - Evendale store $116,100

Apparel Department sales commission-Evendale store $7,950

Total variable cost-Apparel department $124,050

6 0
2 years ago
Other questions:
  • Why are the premiums for a PPO health insurance plan generally more expensive than those for an HMO Health Insurance Plan?
    10·2 answers
  • Norred Corporation has provided the following information: Cost per Unit Direct materials Direct labor Variable manufacturing ov
    6·1 answer
  • You have just moved to San Diego, and in your new job you get $1000 a month in disposable income. Suppose you wish to purchase n
    10·1 answer
  • Greater pricing power is most likely to result from greater:A. unused capacity.B. market concentration.C. volatility in market s
    9·1 answer
  • The government of a small country has made it mandatory for international banks and insurance firms to obtain the consent of ind
    7·1 answer
  • Oriole Company purchased for $8,767,800 a mine that is estimated to have 48,710,000 tons of ore and no salvage value. In the fir
    8·1 answer
  • A new project would require an immediate increase in raw materials in the amount of $12,000. The firm expects that accounts paya
    14·1 answer
  • When the United States sends money to Japan to help earthquake survivors, in which account is this transaction recorded
    6·1 answer
  • Describe three ways that a business can grant credit. Why might granting credit to other businesses be risky for a supplier?
    5·1 answer
  • Airline passengers who fly on aircraft benefit from the specialization and trade that occurs between plane manufacturers since a
    7·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!