Question

If the standard deviation of returns on the market is 20 percent, and the beta of a well-diversified portfolio is 1.5. Calculate the standard deviation of this portfolio.
a. 30 percent.
b. 20 percent.
c. 15 percent.
d. 10 percent.

Answer 1

Answer:

a. 30 percent.

Step-by-step explanation:

Given that:

The standard deviation of returns = 20 percent

Beta = 1.5

Beta=Standard deviation of portfolio × correlation/Standard deviation of market × Correlation

Since Correlation with the market will be +1;

Then;

The Standard deviation of portfolio = 1.5 × 20%

The Standard deviation of portfolio = 30.00%