Assume the historical volatility of a stock on the S&P 500 is 50% and the correlation between the returns of stock is 30% A. What is the average variance of stocks on the S&P? B. What is the average covariance of the stocks? C. Consider a portfolio of S&P stocks. What is the estimated volatility of the portfolio when there 10 stocks in the portfolio? What about 20 stocks in the portfolio?

Assume the historical volatility of a stock on the S&P 500 is 50% and the correlation between the returns of stock is 30% A. What is the average variance of stocks on the S&P? B. What is the average covariance of the stocks? C. Consider a portfolio of S&P stocks. What is the estimated volatility of the portfolio when there 10 stocks in the portfolio? What about 20 stocks in the portfolio?

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter6: Risk And Return

Section: Chapter Questions

Problem 14P

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