Risk

1. The CEO earns her salary and has stocks and stock options in GLE Corporation. About 75% of her total wealth is tied up in the firm. Another 15% is invested in the S&P 500 index, 5% in bonds and 5% in a savings account. Is she well diversified? Why or why not? In your opinion, how will this affect her behavior as a manager (for example, in selecting projects)?

1. You have the following information for Claymore Inc.: 5%, 15%, -10%, 30%.
   1. Calculate the average return and standard deviation for a population for Claymore.
   2. The S&P 500 market portfolio has a standard deviation of 20% and a return of 15%. Claymore Inc. has a beta of .57. Find the correlation between Claymore and the S&P 500. HINT: The formula for beta can help you get the correlation.
   3. If you put $120,000 into Claymore and $40,000 into the S&P 500, find the return and standard deviation of your portfolio in percentages. Use the return and standard deviation from part a.