Fight Finance

(a) 0.05696, 0.702247

(b) 0.05696, 0.238663

(c) 0.053333, 0.936329

(d) 0.040889, 0.930519

(e) 0.04, 0.930519

(a) The variance of the portfolio returns will increase.

(b) The standard deviation of the portfolio returns will increase.

(c) The covariance of returns between stocks A and B will stay the same.

(d) The portfolio expected return will stay the same.

(e) The portfolio value will stay the same.

(a) The more diversification is possible when those stocks are combined in a portfolio.

(b) The lower the variance of returns of an equally-weighted portfolio of those stocks.

(c) The lower the volatility of returns of an equal-weighted portfolio of those stocks.

(d) The higher the covariance between those stocks' returns.

(e) The more likely that when one stock has a positive return, the other has a negative return.

(a) The arithmetic average of variable X is represented by $\bar{X}$.

(b) The standard deviation of variable X is represented by $\sigma_X$.

(c) The variance of variable X is represented by $\sigma_X^2$.

(d) The covariance between variables X and Y is represented by $\sigma_{X,Y}^2$.

(e) The correlation between variables X and Y is represented by $\rho_{X,Y}$.

(a) Percentage points per annum $(\text{pp pa})$ and percentage points per annum $(\text{pp pa})$.

(b) Percentage points per annum $(\text{pp pa})$ and percentage points per annum all squared $\left( (\text{pp pa})^2 \right)$.

(c) Percentage points per annum all squared $\left( (\text{pp pa})^2 \right)$ and percentage points per annum $(\text{pp pa})$.

(d) Percentage points per annum all squared $\left( (\text{pp pa})^2 \right)$ and percentage points per annum all squared $\left( (\text{pp pa})^2 \right)$.

(e) Percentage points per annum all squared $\left( (\text{pp pa})^2 \right)$ and a pure number with no units.

(a) var(X) or $\sigma_X^2$

(b) sd(X) or $\sigma_X$

(c) 1

(d) 0

(e) Mathematically undefined

(a) var(X) or $\sigma_X^2$

(b) sd(X) or $\sigma_X$

(c) 1

(d) 0

(e) Mathematically undefined

(a) Adjusted closing prices add back dividends and reverse the effect of stock splits.

(b) Apple's effective annual total return between the market close on 2 January 2008 and 2 January 2009 was -0.534269 (=(24.22-11.28)/24.22).

(c) Sample variance of the S&P500's effective annual total returns over the 3 year period was 0.084452.

(d) Sample covariance of effective total annual returns between Apple and the S&P500 index over the 3 year period was 0.041131.

(e) Apple's equity beta of annual total returns over the 3 year period was 3.530767.

(a)

(b)

(c)

(d)

(e)