Question

solve a, b, and c

JUIC: U ULIP 18 (12 complete) V W Score: 74.36%, 9.67 of 13 ... P 12-17 (similar to) Question Help Suppose Wesley Publishing's stock has a volatility of 55%, while Addison Printing's stock has a volatility of 25%. If the correlation between these stocks is 75%, what is the volatility of the following portfolios of Addison and Wesley a. 100% Addison b. 75% Addison and 25% Wesley c. 50% Addison and 50% Wesley a. The volatility of a portfolio of 100% Addison stock is %. (Round to two decimal places.)

Answer 1

Given,

Volatility of Addison's stock = 25% or 0.25

Volatility of Wesley's stock = 55% or 0.55

Correlation = 75% or 0.75

Solution :-

weight of Addisson (WA) = 100% og 1 weight of wesley (wow) = 0 % og o So, Addison's weight is 100% in the portfolio. Therefore, volatility of Addison becomes the volatility of portfolio. Thus, Volatility of portfolio of Addison and Wesley is 25%. (6) weight of Addison (WA) = 75% 0% 0.75 weight of wesley (WW) = 25% or 0.25 Now, OAM = (A WA + 10w (ww.)? +20) Ow) (WwWw) (Caw)

where, SAW - Volatility of portfolios of Addison and Wesley SA = Volatility of Addison's Stock ow - Volatility of wesley's Stock CAW - Correlation between these two Stocks رحام UAW SAW = (0.25 (0.15) +losso.25) +2(0.25)(0.55)(0.75)(0.25)(0.75) = (0.0625)(0.5625) +(0.3025 )(0.0675) + 0.038671875 SAP = 0.03515625 +0.0189 0625 + 0.038671875 JAZ = 0.092734375 JAW - 10.092734375 = 0.3045 or 30.45%

(C) weight of Addison IWA) = 50% g 0.50 Weight of Wesley (WW) = 50% of 0.50 Now, JAW = (JA WA + 10w how? + 210A low WA (WW) (cow) Omü = (0.2570.SO) ? + (0.55)*0.50) + 210.25)(0.55)(0.soll0.50)(0.25) DAW? = (0,0625)(0.25) +(0.30 25)(0.25) - + C O Sess C, OSS6RS Tous = 0: 015625 +0.075625 + 0. OS15625 JAU = 0.1428125 JAW = 10.1428125 JAW = 0.379 of 37.79%