Here are some historical data on the risk characteristics of Dell and McDonald's: Dell McDonald's (beta)

Question:

Here are some historical data on the risk characteristics of Dell and McDonald's:
Dell McDonald's
β (beta) ............................................. 1.25 ................... .45
Yearly standard deviation of return (%) ...... 32.4 .................. 14.0
Assume the standard deviation of the return on the market was 19.5%.
a. The correlation coefficient of Dell's return versus McDonald's is .48. What is the standard deviation of a invested half in Dell and half in McDonald's?
b. What is the standard deviation of a invested one-third in Dell, one-third in McDonald's, and one-third in risk-free Treasury bills?
c. What is the standard deviation if the is split evenly between Dell and McDonald's and is financed at 50% margin, that is, the investor puts up only 50% of the total amount and borrows the balance from the broker?
d. What is the approximate standard deviation of a composed of 100 with betas of 1.25 like Dell? How about 100 like McDonald's?
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