1) Standard Deviation – A portfolio has an annual variance of .0420. What is the standard deviation of a two month period?
2) Normal Probabilities The probabilities that a normal random variable X is less than various values of x are 5%, 2.5%, and 1%..What are these values of x?
3) Asset Allocation Fill in the missing information assuming a correlation of -.20.
Portfolio Weights Expected Standard
Stocks Bonds Return Deviation
1.00 0.00 13% 22%
0.80 0.20
0.60 0.40
0.40 0.60
0.20 0.80
0.00 1.00 6% 9%
4) Value-at-Risk (VaR) Statistic Your portfolio allocates equal amounts to three stocks. All three stocks have the same mean annual return of 18%. Annual return standard deviations for these three stocks are 35%, 45%, and 55%. The return correlations among all three stocks are zero. What is the smallest expected loss for your portfolio in the coming year with a probability of 1 percent?