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topjm [15]
3 years ago
14

If 40 additional, randomly selected stocks with a correlation coefficient of 0.3 with the other stocks in the portfolio were add

ed to the portfolio, what effect would this have on the portfolio’s standard deviation ( σpσp )?
Business
1 answer:
Kryger [21]3 years ago
6 0

Answer:

Consider the following explanation and calculation

Explanation:

In the existing portfolio, the risk or standard deviation is 28%

The Correlation Coefficients(CorC) of the 4 stocks in the portfolio is 0.4

Higher the CorC higher the risk of the portfolio.

The market standard deviation is 20%, which is below the current portfolio SD

The 40 stocks being added to the portfolio have a lower CorC of 0.3 (than the 0.4 of the existing stocks).

Since we are adding stocks with lower SD (20% market average) and lower CorC, this would bring down the risk of the portfolio.

This would narrow down to the options B and D.

But since no stock being added has a negative CorC, the possibility of the risk being cancelled (to 0%) is not present.

So the correct option is B.

Other way to look at it would be adding more and more stock from the market to the portfolio will bring the portfolio itself more and more closer to the market itself aligning the SD of portfolio equal to the market which is 20%

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6 0
3 years ago
In addition to the legislators and the governor, there are others involved in the lawmaking process during both regular and spec
Leona [35]

Answer:

b. the public

Explanation:

When it comes to the legislative process of the government, the "citizens" <em>(the public) </em>play an active and direct role. This gives the public <u>the right to contribute regarding decisions that may have an impact on their lives.</u> It is very important that the government inform its citizens of their rights and responsibilities and the decisions that were made in order to obtain <em>"public awareness."</em>

The direct role of the public may be in the form of consultation, such as<em> asking for their feedback and considering their answers when it comes to the lawmaking process.</em> It is essential that their input in the decision-making process is considered.

So, this explains the answer.

4 0
4 years ago
The zero-based budget is the best method of budgeting because:
Troyanec [42]

Answer:

The zero-based budget ensures that every dollar you make is assigned a specific purpose

Explanation:

Zero-based budge: It is also known as "zero-sum budget".

It refers to the process of creating a budget from nothing without using the previous year’s budget. It enables a firm allocate all its resources to expenses and debt payment.

Zero based budget ensures that every income made is allocated to a particular purpose without a remainder. The major goal of zero based budget is to ensure that revenue (income) less expenditure (spendings) is equal to zero.

That is, in zero based budgeting,

Income - expenditure= zero (0).

In other words,

income= expenses

5 0
3 years ago
Read 2 more answers
A potential customer for an $88,000 fire insurance policy possesses a home in an area that, according to experience, may sustain
Ksenya-84 [330]

Answer:

The answer is: In order for the company to break even on all the $88,000 policies in that area it must charge $528 per yearly policy.

Explanation:

In order to calculate what premium the insurance company should charge in order to break even, we must know how much money the company will have to pay during the year.

Fire insurance policy of $88,000

<u>Possible losses             Probability      Money paid by company    </u>  

total loss                              0.001              $88,000

50% loss                              0.01                $44,000

The company will have to pay $88 ($88,000 x 0.001) for a total loss and $440 ($44,000 x 0.01) for a 50% loss, we add them up and get $528.

In order for the company to break even on all the $88,000 policies in that area it must charge $528 per yearly policy.

8 0
3 years ago
Assume that the United States has a comparative advantage in aircraft manufacture and India has a comparative advantage in produ
AlekseyPX

Answer:

1. Explain who in the United States would gain?

The government of the United States will gain from the<em> Import duties </em>that will be charged on the Indian textiles.

2. Who might lose from dismantling trade barriers between the United States and India?

<em>The USA will lose if trade barriers are dismantled.</em>

The United States will lose from dismantling trade barriers because the Indian textile will be massively imported in the country thereby crippling the growth of the local textile manufacturing companies in the United States. India has a comparative advantage over the USA in the manufacturing of textiles, which are in constant demand compared to that of the aircraft which are rarely demanded.

Explanation:

1. The government of the United States will gain from the<em> Import duties </em>that will be charged on the Indian textiles. The government will make huge revenues from the import duties since India will manufacture the textiles at the cheapest costs per unit and influx the USA with affordable and quality clothing.

2. The USA will lose if trade barriers are dismantled.

The United States will lose from dismantling trade barriers because the Indian textile will be massively imported in the country thereby crippling the growth of the local textile manufacturing companies in the United States. India has a comparative advantage over the USA in the manufacturing of textiles, which are in constant demand compared to that of the aircraft which are rarely demanded.

5 0
3 years ago
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