Chapter 5

Question 1

Expected Return of a Port with two assets

Answer 1

Question 2

Wi

Answer 2

Weight of asset i

Question 3

Port Variance

Answer 3

Question 4

Correlation (2 formulas)

Answer 4

Exam may not give you Cov but it will give you Correlation Coeff.

Question 4

Expected Return and Variance Chart
Which is Covariance and which is SD?

Answer 4

SD : aa , bb, cc
Cov: Ab, Ba, Ca,

Question 4

3-asset port variance

Answer 4

Question 4

Covariance EXAMPLE

Answer 4

Exam may not give you Cov but it will give you Correlation Coeff

Question 4

Covariance
Sample Covariance

Answer 4

Question 4

Negative Covariance

Answer 4

Returns move in opposite direction

Question 5

Positive Covariance

Answer 5

Returns move in same direciton

Question 6

Port SD

Answer 6

Square of variance

Question 7

Joint Probability

Answer 7

Question 8

Normal Distribution Example

Answer 8

Question 9

Shortfall Risk

Answer 9

The prob that a port return or value will be below a target return or value.

Question 10

Roy Safety-Frist Ratio

Answer 10

Same as Sharpe Ratio
Higher RSF value, the lower the probability of shortfall.
Z test