Given the following information estimate the standard deviation of a portfolio of 40% AAA and 60%...

Question

Question

Given the following information estimate the standard deviation of a portfolio of 40% AAA and 60% BBB monthly returns. Enter

Answer 1

Answer #1

15 120 80 95 Stock Price Month AAA AAA Return BBB BBB Return 18-Jan 100 18-Feb 20.00% 6.67% 18-Mar 140 16.67% 18.75% 18-Apr 1

B BB Return 1007 75 95 F Stock Price Month AAA AAA Return BBB 18-Jan 18-Feb 1201=(G4-G3/G3 18-Mar 140 16.67% 18-Apr 110 -21.4

140 95 F G Stock Price Month AAA AAA Return BBB BBB Return 18-Jan 100 75 18-Feb 120 20.00% 6.67% 18-Mar 16.67% 18.75% 18-Apr

Hence, standard deviation of AAA is 17.19% and BBB is 11.21% and also correlation coefficient is 0.186

Hence, standard deviation of portfolio with 40% AAA and 60% BBB=sqrt of (0.4^2*17.19%^2+0.6^2*11.21%^2+2*0.4*0.6*0.186*0.1719*0.1121)

ܕ ܗܗܨܨܕܗ ܕ 2 ܀ ;»; ww ; ; + w /ܢ - , ._ (ere w1=0.4, sigma 1=0.1719, w2=0.6, sigma 2= 0.1121, p1=0.186)

= 10.47%

Hence, standard deviation on monthly expected return would be 10.47%.

Answer 2

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