Exercises

1) Given the monthly returns of the two stocks (-2%, -3.1%, + 1%, + 3.3%, -4%, -2.9%) and (+ 0.8%, -2.4%, -
3.1%, + 1.9%, -2%, + 1.1%) calculate the correlation.

rho = +30.20

rho = 20.30

rho = -30.20

none

[Answer: rho = +30.20]

2) If two uncorrelated stocks have expected returns of 4% and 18% and volatility of 3.9% and 11%
respectively, calculate the minimum variance portfolio

89.01% e 10.99%

60% e 40%

79.01 % 20.99%

none

[Answer: 89.01% e 10.99% ]

3) Beta of an asset is 0.8 in a market with expected retun equal to 8%e volatility equal to 19%. if the asset's
volatilityis the 20%, evaluate its correlation with the market.

rho = 0.76

rho = 0.67

rho = 0.5

none

[Answer:0.76]

4) If the risk-free rate is 2% and the market portfolio has an expected return of 12% and a standard
deviation of 19.5%, determine, according to the CAPM, the expected return of an asset with 8% standard
deviation, knowing that it is correlated at 70% with the market portfolio.

beta = 0.872, mu=8.74

beta = 0.287, mu=4.87

beta = 0.782, mu=8.78

none

[Answer: beta = 0.287, mu=4.87 ]

5) Determine according to the CAPM the expected return of a perfectly correlated market asset with 15%
volatility knowing that the risk-free rate is 4%, the expected return of the market is 13% and the market
volatility is 22%.

mu=1.14

mu=14.10

mu=10.14

none

[Answer: mu=10.14 ]

6) Which investment would be preferred by a rational investor? Portfolio A r = 18%, sigma = 20% Portfolio B
r = 14%, sigma = 20%

both

not enough information

[Answer: A]

7) Which investment would be preferred by a rational investor? Portafoglio C r=15%, sigma = 18%
Portafoglio D r=13%, sigma = 8%

both

not enough information

[Answer: not enough information]

8) Which investment would be preferred by a rational investor? Portafoglio E r=14%, sigma = 16%
Portafoglio F r=14%, sigma = 10%

both

not enough information

[Answer: F]