University of Southeastern Philippines

AGB 413- INVESTMENT MANAGEMENT

QUIZ

Name :_____________________________ Date:_________

General Instructions:

Note: PROPERLY LABEL your answer.

Problem Solving. Assume we have an investor interested in two securities (Security A and Security B). The
securities contain the following information.

SCENARIO
SECURITY A
1 2 3
PROBABILITY 0.10 0.15 0.40
RATE OR RETURN -8% -2% 4%

SCENARIO
SECURITY B
1 2 3
PROBABILITY 0.25 0.50 0.35
RATE OR RETURN -10% 7% 25%

Solve for the following:

A. Covariance
B. Correlation

Questions:

1. Interpret the result of Covariance

2. Interpret the result of Correlation
3. Will you recommendation for the investor to include both assets to the
portfolio?Explain your decision.
4. Comment why methods and tools of the statistics are so important in investment
decision making.