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Category > Business & Finance Posted 19 May 2017 My Price 11.00

Assume that your uncle holds

Assume that your uncle holds just one stock, East Coast Bank (ECB), which he thinks has very little risk. You agree that the stock is relatively safe, but you want to demonstrate that his risk would be even lower if he were more diversified. You obtain the following returns data for West Coast Bank (WCB). Both banks have had less variability than most other stocks over the past 5 years. Measured by the standard deviation of returns, by how much would your uncle's risk have been reduced if he had held a portfolio consisting of 35% in ECB and the remainder in WCB? (Hint: Use the sample standard deviation formula.)

Year

ECB

WCB

2007

40.00%

40.00%

2008

-10.00%

15.00%

2009

35.00%

-5.00%

2010

-5.00%

-10.00%

2011

15.00%

35.00%
     
Average return =

15.00%

15.00%
Standard deviation =

22.64%

22.64%

 

Answers

Homework Helper
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Status NEW Posted 19 May 2017 12:05 PM My Price 11.00

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