A Portfolio Manager Is Interested in Reducing the Risk of a Particular

question 85

Essay

A portfolio manager is interested in reducing the risk of a particular portfolio by including assets that have little,if any,correlation.He wonders whether the stock prices for the firms Apple and Google are correlated.As a very preliminary step,he collects the monthly closing stock price for each firm from January 2012 to April 2012. a.Compute the sample correlation coefficient.
B)Specify the competing hypotheses in order to determine whether the stock prices are correlated.
C)Calculate the value of the test statistic and approximate the corresponding p-value.
D)At the 5% significance level,what is the conclusion to the test? Explain.

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Definitions:

Time Value

The principle that current money has a higher value than the same amount would in the future, given its potential to earn more.

Money

A medium of exchange that is widely accepted in transactions for goods and services, acting as a unit of account, a store of value, and sometimes, a standard of deferred payment.

Compounding

A method in which an investment's worth grows over time as the returns, including both capital gains and interest, accumulate interest.

Compound Interest

The practice of charging interest on the principle amount along with the interest that has been piled up from past periods, relevant to both lending and saving scenarios.