Suppose that as the chief investment officer for a global equity fund that currently has $$100$ million of assets under management, you are considering investing in an emerging market economy's

stock market for the first time. You estimate that this country's stock index return will have a $0\mathrm{.}25$ correlation with the return of your existing holdings going forward, but that its standard deviation of

Solved: O

return will be high, $0\mathrm{.}35$ per year compared to a $0\mathrm{.}15$ standard deviation for your existing portfolio. a$)$ Based on these estimates, determine the estimated standard deviation of your new portfolio's return if you sell $$10$ million of your existing assets and buy this emerging market country's stock index with the money.