Week 2 Part 2

Question 1

Expected return of a security (formula)

Answer 1

Sum of possible return x probiblity of the return

Question 2

Variance and sd of returns (formula)

Answer 2

Sum of (possible return-expected return)^2 x probaility of return

Sd is this square rooted

Question 3

Expected return of a portfolio

Answer 3

Sum of (weight of security x expected return)

Question 4

What are the two types of diversifacation?

Answer 4

• random diversifiation

- efficient portfolio diversifiaction

Question 5

Whats covarience of two securities show? What does it mean if it is a positive number

Answer 5

Covarience is the measure of the extent to which two variables move together. Positive covarience menas the securities move in the same direction