One Liberty Heico .12 .16 .08 .20 Price Rate of Return Probability $16 -20% 0.25
ID: 2736503 • Letter: O
Question
One Liberty
Heico
.12
.16
.08
.20
Price
Rate of Return
Probability
$16
-20%
0.25
20
0%
0.30
24
+20%
0.25
28
+40%
0.20
Price
Rate of Return
Probability
$16
-20%
0.25
20
0%
0.30
24
+20%
0.25
28
+40%
0.20
21. Christy is considering investing in the common stock of One Liberty and Heico. The following data are available for these two securities:One Liberty
Heico
Expected return.12
.16
Standard deviation of returns.08
.20
If she invests 30% of her funds in Heico and 70% in One Liberty, and if the correlation of returns between these securities is +0.65, what is the portfolio's standard deviation? (Points : 3) 15.67%
9.44%
10.54%
9.67%
Explanation / Answer
Answer:-
Answer (21)-
The portfolio standard deviation after consideration of correlation:
Portfolio Standard Deviation =
=0.302* 0.082 +.702*0.202 + 2*0.30*.020*0.08*0.70*0.65
=0.09*0.0064 +0.49*0.04 +0.004368
=0.024544 after root of 0.024544 we get 15.67
=15.67 %
Answer(22)-
E(R) = -20%(0.25) + 0%(0.30) + 20%(0.25) + 40%(0.20) = 8%
Answer (23)-
Expected return = 8%; Standard deviation = 21.4%v = 21.4% / 8% = 2.68
Answer (24)-
K p= $ 3.25/($25-$1) =13.54%
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