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Exercise

Weighted average (3)

Let's look at an example of recycling. What if you wanted to give equal weight to your Microsoft and Sony stock returns? That is, you want to be invested 50% in Microsoft and 50% in Sony. 

ret <- c(7, 9)

weight <- .5

ret_X_weight <- ret * weight

ret_X_weight

[1] 3.5 4.5

ret is a vector of length 2, and weight is a vector of length 1. R reuses the .5 in weight twice to make it the same length of ret, then performs the element-wise arithmetic.

Instructions

100 XP
  • A named vector, ret, containing the returns of 3 stocks is in your workspace.
  • Print ret to see the returns of your 3 stocks.
  • Assign the value of 1/3 to weight. This will be the weight that each stock receives.
  • Create ret_X_weight by multiplying ret and weight. See how R recycles weight?
  • sum() the ret_X_weight variable to create your equally weighted portf_ret.
  • Run the last line of code multiplying a vector of length 3 by a vector of length 2. R reuses the 1st value of the vector of length 2, but notice the warning!