Question

You are planning to make investment into three stocks, stock A, stock B and stock C....

You are planning to make investment into three stocks, stock A, stock B and stock C. If the following information is given for them (KA: Rate of return of stock A):

Variance(KA)=360

Variance(KB)=286

Variance(KC)=120

Covariance(KA, KB)= - 98

Covariance (KA, Kc)=260

Covariance (KC, KB)= - 118

If you form a portfolio investing 30% of your savings into stock A (WA=30%), 35% of your savings into stock B (WB=35%) and 35% of your savings into stock C (WC=35%), what will be the standard deviation of rate of return of your portfolio?

Homework Answers

Answer #1

where Wa = Weight of stock a ; Wb = Weight of Stock B; Wc = Weight of Stock C σa = Standard deviation of stock A; σb = Standard deviation of stock B; σc = Standard deviation of stock C; r ab= Correlation Coefficient between a & b ; r bc= Correlation Coefficient between b & c; r ac= Correlation Coefficient between a & c

= 9.34

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