Use a Spreadsheet to Calculate the Variances and Standard Deviations

question 10

Essay

Use a spreadsheet to calculate the variances and standard deviations of the expected
returns for the following two securities as well as the covariance of the two securities
returns: Assume all scenarios are equally likely to occur.

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Definitions:

Unbiased Forward Rate

Theoretically, a forward rate in the currencies market that is equal to the spot rate adjusted for interest rate differentials, without any prediction of future direction.

Forward Rate

The agreed-upon price for a financial transaction that will occur at a future date, often used in the context of foreign exchange or interest rates.

Spot Rate

The current market price of a currency, security, or commodity available for immediate settlement.

Absolute Purchasing Power Parity

A theory that suggests that, in the absence of transaction costs and other barriers, identical goods and services in different countries should have the same price when expressed in a common currency.