The variance of BMI, Inc. is estimated to be 0.0136 , while the variance of QBU,
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Question
The variance of BMI, Inc. is estimated to be 0.0136,
while the variance of QBU, Inc. is estimated to be 0.0242.
The covariance between BMI and QBU is estimated to be 0.0055.
What is the variance of a two stock portfolio if 0.48 of your money is placed in BMI, and 0.52 of your money is placed in QBU.
Portfolio Variance
Question 2
J.P. Smart forms a two asset portfolio by placing 34% of his money in the risk free asset, and 66% of his money in an asset that has the same risk as that of the market portfolio.
The beta of J.P.'s portfolio is
Explanation / Answer
The variance of BMI, Inc. is estimated to be 0.0136,
while the variance of QBU, Inc. is estimated to be 0.0242.
The covariance between BMI and QBU is estimated to be 0.0055.
What is the variance of a two stock portfolio if 0.48 of your money is placed in BMI, and 0.52 of your money is placed in QBU.
Portfolio Variance = 0.48^2*0.0136 + 0.52^2*0.0242 + 2*0.48*0.52*0.0055 = 0.012423
Question 2
J.P. Smart forms a two asset portfolio by placing 34% of his money in the risk free asset, and 66% of his money in an asset that has the same risk as that of the market portfolio.
The beta of J.P.'s portfolio = 34%*0 + 66%*1 = 0.66
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