Question

# The following data are available for two securities: Asset A Asset B Expected Return 10% 10%...

The following data are available for two securities:

 Asset A Asset B Expected Return 10% 10% Standard Deviation 3% 3%

An an investor forms a portfolio of 50% in Asset A and 50% in Asset B. If the correlation between the two assets is 1.0, the coefficient of variation for the portfolio is closest to:

Multiple Choice

• 0.30.

• 0.03.

• 0.0009.

• 3.33.

• 0.10.

 Expected Return of portfolio = (Return of stock A* weight of stock A) + (Return of stock B* weight of stock B) = (10%*0.50)+(10%*0.50) = 10% Standard Deviation of Portfolio= [{(weight of A)^2 * (sigma of A)^2} + {(weight of B)^2 + (sigma of B)^2} + {2*(weight of A)*(weight of B)*(Correlation of A&B * sigma of A* sigma of B}]^(1/2) = ((0.50)^2*(3)^2 + (0.50)^2*(3)^2 + (2*0.5*0.5*1*3*3))^(1/2) = 3.0 Coefficient of variation= (Standard Deviation/Mean)*100 0.3 (3/10) The correct answer is option1 i.e 0.30

#### Earn Coins

Coins can be redeemed for fabulous gifts.