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Ivenika [448]
3 years ago
11

A portfolio has 30% of its value in IBM shares and the rest in Microsoft (MSFT). The volatility of IBM and MSFT are 35% and 30%,

respectively, and the correlation between IBM and MSFT is 0.5. What is the standard deviation of the portfolio
Business
1 answer:
Masteriza [31]3 years ago
5 0

Answer:

30.51%

Explanation:

The computation of the standard deviation is shown below:

Data provided in the question

Weightage in IBM = 30% = WI

Weightage in MFST = 100 - 30% = 70% = WM

The Volatility in IBM = 35% = VI

The Volatility in MFST = 30% = VM

Correlation = 0.5 = C

Based on the above information

The standard deviation is

= \sqrt{(VI^2\times WI^2) + (VM^2 \times WM^2) + (2 \times VI \times WI \times VM \times WM \times C)}

= \sqrt{(0.35^2\times 0.30^2) + (0.35^2 \times 0.70^2) + (2 \times 0.35 \times 0.30\times 0.30 \times 0.70 \times 0.5)}

= 30.51%

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