Question

Possible Internal Rates of Return for Venture 1 Possible Internal Rates of Return for Venture 2...

Possible Internal Rates of Return for Venture 1 Possible Internal Rates of Return for Venture 2
0.00% 200.00%
100.00% 100.00%
200.00% 0.00%
0.00% 200.00%
100.00% 100.00%
200.00% 0.00%

A portfolio composed of 50% invested in Venture 1 and 50% invested in Venture 2 has the same risk as a portfolio composed of 100% invested in Venture 2. Measure risk using the Excel function “=STDEV”.

True or False?

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Answer #1

True

Both the portfolio has same Standard Deviation therefore a portfolio composed of 50% invested in Venture 1 and 50% invested in Venture 2 has the same risk as a portfolio composed of 100% invested in Venture 2. In the excel work sheet =stdev.p is used to calculate the Standerd Deviation.

Working for Standerd Deviation for both the portfolio using stdev.p function is as under :

As Standerd Deviation for both the Ventures is same, a portfolio composed of 50% invested in Venture 1 and 50% invested in Venture 2 has the same risk as a portfolio composed of 100% invested in Venture 2.

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