Question
Here are some historical data on the risk characteristics of Bank of America and Starbucks. Bank of America Starbucks (beta) 1.57 .83 Yearly standard deviation
Here are some historical data on the risk characteristics of Bank of America and Starbucks.
Bank of America | Starbucks | |
(beta) | 1.57 | .83 |
Yearly standard deviation of return (%) | 35.80 | 21.00 |
Assume the standard deviation of the return on the market was 23.0%. (Use decimals, not percents, in your calculations.)
a. The correlation coefficient of Bank of America's return versus Starbucks is .30. What is the standard deviation of a portfolio invested half in each stock? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Standard deviation %
b. What is the standard deviation of a portfolio invested one-third in Bank of America, one-third in Starbucks, and one-third in risk-free Treasury bills? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Standard deviation %
c. What is the standard deviation if the portfolio is split evenly between Bank of America and Starbucks 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? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Standard deviation %
d-1. What is the approximate standard deviation of a portfolio comprised of 100 stocks with betas of 1.57 like Bank of America? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Standard deviation %
d-2. What is the approximate standard deviation of a portfolio comprised of 100 stocks with betas of .83 like Starbucks? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Standard deviation %
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