core: 0 of 1 pt 5 of 11 (4 complete) Hw Score: 27 2796, 3 of 1 1 pt LO1.13 (Stat

Question

core: 0 of 1 pt 5 of 11 (4 complete) Hw Score: 27 2796, 3 of 1 1 pt LO1.13 (Static) i Question Help * Consider the data provided in the table below for a portfolio of assets A and B. The portfolio weights and variances are given in the table. The variances are expressed in decimal form For example if the standard deviation is 50%, then the vanance is 0.5. 025. The correlation of retums of the two assets is-1.00 What is ho standard deviation of the portfolio? Asset A Asset B 0.19 Portolio Weights 0.81 Variances Standard Deviation 0.38 0.1444 0.0625 0.25 The standard deviation of the portfolio is (Enter your answer in decimal form. Round to four decimal places)

Explanation / Answer

Part 1)

The standard deviation of the portfolio is calculated with the use of following formula:

Standard Deviation of the Portfolio = ((Weight of Asset A)^2*(Standard Deviation of Asset A)^2 + (Weight of Asset B)^2*(Standard Deviation of Asset B)^2 + 2*Weight of Asset A*Weight of Asset B*Standard Deviation of Asset A*Standard Deviation of Asset B*Correlation Coefficient between Returns on Asset A and Asset B)^(1/2)

Substituting values in the above formula, we get,

Standard Deviation of the Portfolio = ((.81)^2*(.38)^2 + (.19)^2*(.25)^2 + 2*.81*.19*.38*.25*-1)^(1/2) = .2603 (answer)

_____

Part 2)

The beta of the portfolio can be calculated with the use of formula given below:

Beta of Portfolio = Investment Percentage in Fidelity*Beta of Fidelity + (1 - Investment Percentage in Fidelity)*Beta of Templeton

Substituting values in the above formula, we get,

Beta of Portfolio = 62.74%*.50 + (1-62.74%)*1.30 = .80 (answer)

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