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Here are returns and standard deviations for four investments. Return (%) Standard Deviation (%) Treasury bills...

Here are returns and standard deviations for four investments.

Return (%) Standard Deviation (%)
Treasury bills 5.0 0
Stock P 11.5 16
Stock Q 14.5 28
Stock R 24.0 27

Calculate the standard deviations of the following portfolios.

a. 50% in Treasury bills, 50% in stock P. (Enter your answer as a percent rounded to 2 decimal places.)

a.Standart Deviation:?%

b. 50% each in Q and R, assuming the shares have: (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

b.

Perfect positive correlation standart deviation:?%

Perfect negative correlation standart deviation:?%

No correlation standart deviation:?%

Solutions

Expert Solution

ANswer 1 Portfolio SD = 8

Portfolio Standard Deviation=

where Wa = Weight of stock a ; Wb = Weight of STock B; SDa = Standard deviation of stock A; SDb = Standard deviation of stock B; r = Correlation COefficient between a & b

The caclulation is shown in excel and formuals are given below:

Answer 2

a. when perfect positive correlation (1) SD == 27.5

b..when perfect negative correlation (-1) SD = 0.5

c. When no COrrelation (0) SD    = 19.45   

jeff jeffy answered 1 year ago
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