Question
The following table provides standard deviations and correlations The following table provides standard deviations and correlation coefficients relating to share A, share B, and the
The following table provides standard deviations and correlations
The following table provides standard deviations and correlation coefficients relating to share A, share B, and the market portfolio. Use this information to answer the questions below. Asset Share A Share B Market ortfolio Standard deviation 0.18 0.23 0.15 Correlation with share A 0.40 0.60 Correlation with share B 0.40 0.30 a) Calculate the standard deviation of a portfolio consisting of 60% in share A and 40% in share B. (3 marks) b) Calculate the beta of share A and the beta of share B. (2 marks) c) Calculate the beta of a portfolio consisting of 60% in share A and 40% in share B. (2 marks) d) Briefly explain why the formula used to calculate the beta of a portfolio is different to the formula used to calculate the standard deviation of a portfolio. Answer this in no more than three sentences. (3 marks)
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