Question
QUESTION 4 a [ 7 Marks] The Bank of Tinytown has three loans that have the following characteristics. If the covariance between A and C
QUESTION 4 a [ 7 Marks]
The Bank of Tinytown has three loans that have the following characteristics. If the covariance between A and C is approximately 0.100 and the covariance between Loan B and Loan C is approximately 0.065, what are the expected return and standard deviation of this portfolio? Given the covariances, can the calculation be simplified? What will the risk of the portfolio be, given the simplification?
| Loan Size ($ million) | Return (%) | Variance (%) | |
| Loan A | $ 500.0 | 11.0 | 10.6 |
| Loan B | $ 1,600.0 | 7.50 | 5.0 |
| Loan C | $ 800.0 | 12.0 | 9.5 |
QUESTION 4b [ 3 Marks]
Briefly describe any way(s) that the risk of this portfolio may be reduced? Be specific and show calculations.
Step by Step Solution
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Answer Portfolio Expected Return and Standard Deviation Expected Return The expected return of the portfolio can be calculated as the weighted average ...
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Mechanics Of Materials
Authors: Russell C. Hibbeler
11th Edition
0137605528, 9780137605521
