Lecture 6 - Portfolio Modelling in Excel

With………………, there is no linear relationship between the returns on the two securities.

• Correlation Coefficient.

• Positive correlation.

• zero correlation.

• Negative correlation.

Perfectly ________ correlated series move exactly together and have a correlation coefficient of ________, while perfectly ________ correlated series move exactly in opposite directions and have a correlation coefficient of ________.

• negatively; -1; positively; +1

• negatively; +1; positively; -1

• positively; -1; negatively; +1

• positively; +1; negatively; -1

E(ri) denotes:

• the expected return on asset i

• the expected return on asset r

• the expected return on asset E

• None of these

Cov(ri, rj) denotes:

• the covariance of asset i’s and asset j’s variances

• the covariance of asset i’s and asset j’s standard deviations

• the covariance of asset i’s and asset j’s returns

• None of these

what is the difference between Cov(ri, rj) and σij ?

• second is wrongly written

• both are same.

• both are same but different in calculation

• first is covariance and second is called variance

What is the difference between sample and population ?

• The size of the sample is always less than the total size of the population

• The size of the population is always less than the total size of the sample

• both are the same.

• When calculating any statistic for sample, always use N-1

Is there a significant difference between the sample standard deviation and population standard deviation?

• Yes, always.

• Mostly no.

• Not sure.

• What kind of question is that! how should I know???

If you wish to calculate returns using Continuously Compounded Return, what Excel formula you should use?

• Simple division and subtraction, =/-

• Natural Logarithm, =ln

• Multiply Matrix, =mmult

• None of these

If you wish to calculate the variance and standard deviation, should you use sample or population of the corresponding formulas in Excel?

• Population, because we are dealing with whole population

• Population, because both will result exactly the same

• Sample, because both will result exactly the same

• Sample, because we are generally having a sample of the population

Which one of the following formulas is best to interpret about the relationship between two assets?

• = COVARIANCE.S

• = CORREL

• = COVAR

• = CORRELATION