The following is focused on the importance of diversification. [12 points] a. Define Co-Variance. Why...
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The following is focused on the importance of diversification. [12 points] a. Define Co-Variance. Why is co-variance not a good measure of relationship between two securities or sectors? b. Define correlation coefficient in formula terms. Discuss the potential value of the coefficient and why it is a better measure of the relationship between two securities or sectors. c. Given the following information on a two risky-asset portfolio, i. discuss the three rules using words and fomulae and ii. use the appropriate formula to calculate expected refurn and variance of the rate of return on the portfolio: - E(Rb)=5%, ob =8%,E(Rs)=10%, =18%,bs=.23 - 45% invested in stocks and the remainder in bonds
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The following is focused on the importance of diversification. [12 points] a. Define Co-Variance. Why is co-variance not a good measure of relationship between two securities or sectors? b. Define correlation coefficient in formula terms. Discuss the potential value of the coefficient and why it is a better measure of the relationship between two securities or sectors. c. Given the following information on a two risky-asset portfolio, i. discuss the three rules using words and fomulae and ii. use the appropriate formula to calculate expected refurn and variance of the rate of return on the portfolio: - E(Rb)=5%, ob =8%,E(Rs)=10%, =18%,bs=.23 - 45% invested in stocks and the remainder in bonds 