Consider an economy with two types of firms, S and I. S firms all move together. I firms move independently. For both types of firms, there is a 60% probability that the firm will have a 15% return and a 40% probability that the firm will have a −10% return. What is the volatility (standard deviation) of a portfolio that consists of an equal investment in: a. 20 firms of type S? b. 20 firms of type I?
Consider an economy with two types of firms, S and I. S firms all move together. I firms move independently. For both types of firms, there is a 60% probability that the firm will have a 15% return and a 40% probability that the firm will have a −10% return. What is the volatility (standard deviation) of a portfolio that consists of an equal investment in: a. 20 firms of type S? b. 20 firms of type I?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Consider an economy with two types of firms, S and I. S firms all move together. I firms move independently. For both types of firms, there is a 60% probability that the firm will have a 15% return and a 40% probability that the firm will have a −10% return. What is the volatility (standard deviation) of a portfolio that consists of an equal investment in:
a. 20 firms of type S?
b. 20 firms of type I?
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