FREE Trial
Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You invest 38% of your money in Stock A and the rest in Stock B. The standard deviation of annual returns is 56% for Stock

You invest 38% of your money in Stock A and the rest in Stock B. The standard deviation of annual returns is 56% for Stock A and 56% for Stock B. The correlation between the two stocks is 0.5. By how many percentage points does diversifying between these two stocks reduce your risk? Go out three decimals - for example, write 5.6% as .056.
image text in transcribed
You invest \38 of your money in Stock A and the rest in Stock B. The standard deviation of annual returns is \56 for Stock A and \56 for Stock B. The correlation between the two stocks is 0.5 . By how many percentage points does diversifying between these two stocks reduce your risk? Go out three decimals - for example, write \5.6 as .056

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Cost Of Capital Applications And Examples

Cost Of Capital Applications And Examples

Authors: Shannon P. Pratt, Roger J. Grabowski, Richard A. Brealey

5th Edition

1118555805, 9781118555804

More Books

Students also viewed these Finance questions

Question

★★★★★
What principal will amount to $3367.28 if invested at 9% from November 1, 2015, to May 31, 2016?

Answered: 1 week ago

Question

★★★★★
1)5 is greater than or equal to x, and -9 is less than x 2)Graph the inequality below on the number line. x 0

Answered: 1 week ago

Question

★★★★★
What specific challenges might subnational governments (states, provinces, etc.) encounter than make it more difficult to create successful private equity industry?

Answered: 1 week ago

Question

★★★★★
The production supervisor of the Machining Department for Nell Company agreed to the following monthly static budget for the upcoming year: The actual amount spent and the actual units produced in...

Answered: 1 week ago

Question

★★★★★
You invest 38% of your money in Stock A and the rest in Stock B. The standard deviation of annual returns is 56% for Stock A and 56% for Stock B. The correlation between the two stocks is 0.5. By how...

Answered: 1 week ago

Question

★★★★★
Mrs. Blue Gray has a dwelling in Scott County which is covered under a MRPIUA policy. During a storm, wind-driven rain entered her living room through a gap in the chimney flashing that has existed...

Answered: 1 week ago

Question

★★★★★
10. (10 points) Cheng Corp. collected the following data for three customers. Gross sales HS $50,000 AD BW $65,000 $80,000 Sales discounts" 2% 3% 4% Number of orders 100 312 125 Number of deliveries...

Answered: 1 week ago

Question

★★★★★
Question 1 of 5. Sally has been appointed as personal representative of Jeremy's estate. Which of the following is a responsibility of Sally's? Obtain a power of attorney for the estate. Distribute...

Answered: 1 week ago

Question

★★★★★
On December 31 of the current year, Letterman Co.'s cost of goods sold amounted to $1,050,000. However, Letterman's auditors determined the beginning merchandise inventory was understated by $20,000...

Answered: 1 week ago

Question

★★★★★
Using the Indirect Method, prepare a partial Statement of Cash Flows for XYZ Corp. Partial Balance Sheet and other financial statement information: December 31 2017 2016 Accounts Receivable 52,000...

Answered: 1 week ago

Question

★★★★★
Ovation Company has a single product called a Bit. The company normally produces and sells 62,400 Bits each year at a selling price of $46 per unit. The company's unit costs at this level of activity...

Answered: 1 week ago

Previous Question Next Question