Question
The following statistics and estimates were compiled by Big Moon Bank regarding a proposed new branch office and the bank itself: Branch office expected return
The following statistics and estimates were compiled by Big Moon Bank regarding a proposed new branch office and the bank itself: Branch office expected return = 8% Standard deviation of branch return = 0.20 Existing banks expected return = 9% Standard deviation of existing banks return = 0.10 Branch asset value as a percentage of total bank assets = 0.22 Correlation of net cash flows for branch and bank as a whole = -0.35 What will be Big Moons overall variance of returns after this branch is added? (Enter your answer as a number with 4 decimal places, e.g. 0.1111. DO NOT ENTER THE ANSWER AS A PERCENTAGE)
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