CFA CFA Level 1 Question of the Week – Portfolio Management

Question of the Week – Portfolio Management

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    • Avatar of AdaptPrepAdaptPrep
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        You are given the following portfolio:

        Company Name Amount invested Standard Deviation
        Isotics 15,000 0.3
        Ambiss 5,000 0.1

        The portfolio’s standard deviation, if the covariance is 0.05, is closest to:

        • 20%
        • 23%
        • 26%
      • Avatar of AdaptPrepAdaptPrep
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          The portfolio standard deviation formula is:
          σp = √[(w1^2)(σ1^2) + (w2^2)(σ2^2) + 2(w1)(w2)Cov(R1, R2)]

          We have:
          w1 = 15,000 / 20,000 = 0.75
          w2 = 5,000 / 20,000 = 0.25
          σ1 = 0.3
          σ2 = 0.1
          Cov(R1, R2) = 0.05

          Therefore,
          σp = √[(0.75^2)(0.3^2) + (0.25^2)(0.1^2) + 2(0.75)(0.25)(0.05)] = 0.2645

        • Avatar of shannondailyshannondaily
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            Woo! I got it right. ­čÖé 

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