1.05 Portfolio Mathematics
Question 1
An analyst estimates the following joint probability function of returns for two assets, X and Y,
under three scenarios:
Based only on this information, the covariance of returns of the two assets is closest to:
A. −1.63
B. 0.39
C. 6.53
Question 2
An analyst estimates a joint probability function of two assets' returns during good, average, and
poor business conditions:
The covariance of returns is closest to:
A. 9.8
B. 10.70
C. 20.23
Question 3
All else equal, if a portfolio consists of two stocks, the portfolio will have the least risk if the
correlation between the two stocks is:
A. less than zero.
B. equal to zero.
C. greater than zero.
Question 4
A portfolio manager gathers the following information about a portfolio:
