Returns on the Stock of First Boston and Midas Metals

question 30

Essay

Returns on the stock of First Boston and Midas Metals for the years 2010-2013 are shown below.

a.Compute the average annual return for each stock and a portfolio consisting of 50% First Boston and 50% Midas.
b.Compute the standard deviation for each stock and the portfolio.
c.Are the stocks positively or negatively correlated and what is the effect on risk?

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Definitions:

Alarm Reaction

Alarm reaction is the initial stage in the stress response, where the body prepares to fight or flee from a perceived threat.

Respiration

The biological process of moving air in and out of the lungs, facilitating the exchange of oxygen and carbon dioxide between the blood and the environment.

Catecholamines

A class of neurotransmitters that include dopamine, norepinephrine, and epinephrine, which are involved in flight or flight responses, mood regulation, and cognitive alertness.

Endorphins

Natural chemicals produced in the brain that act as neurotransmitters to reduce pain and enhance pleasure.