PM formulas- let's lock this quick one in

CFA Level II
#1

If you forgot the formula, go look it up (I had to on this 1st one I saw today)- got the 2nd one in another quiz a little later and for now the formula is sticking in my brain finally. Consider an equally-weighted portfolio comprised of 17 assets in which the average asset standard deviation equals 0.69 and the average covariance equals 0.36. What is the variance of the portfolio? A) 32.1%. B) 37.5%. C) 36.7%. D) 36.77%. Consider an equally-weighted portfolio comprised of five assets in which the average asset standard deviation equals 0.57 and the average correlation between all asset pairs is -0.21. The variance of the portfolio is closest to: A) 1.00%. B) 10.00%. C) 1.82%. D) 18.24%.

#2

C, A? edited after looking up second forumla.

#3

C and A? Not sure of the second one though.

#4

Quick question. In the second problem is it supposed to be covariance at -.21?

#5

dont’ think so, the formula is var port = var ((1-r)/n) + r)

#6

Can’t find the formula in Schweser and not willing to sift through CFA textbooks at the moment :wink: Will you please enlighten us? I promise I will memorise it, seems like a good nugget.

#7

1/17 * (0.69)^2 + (16)/17*(0.36) = 0.36682353 = C? 1/5 * (0.57)^2 + (4)/5*(-0.21) = -0.054 = E? [I will look this up from the book - later]

#8

c a

#9

Formula on page 325, book 3. (1/n)*Var + ((n-1)/n)*Cov or Var*((1-r)/n + r)

#10
  1. c 2) a
#11

Good one, Bann

#12

second one is correlation, not covariance… that’s the twist! C is right for the 1st one. 1/n x variance + (n-1)/n x cov = variance portfolio second one- remember that r = cov/std dev a x std dev b and here they all have the same std dev… so it’s just a quick extra step but same formula works. answer is A… i’m about to walk my dog but if anyone has questions i can go back and find the exact answer. do the math and i want to say it got just under 1… A was the closest.

#13

I Got c, a, memorized these awhile ago but I think d is too close for comfort, if you round to 5 digits past the decimal during calcs like I do, you could easily get d.

#14

I didn’t see these questions in Q-bank?!

#15

bannisja Wrote: ------------------------------------------------------- > i’m about to walk my dog good questions banni, but I don’t feel like walking or pooping now… boow boow, Grrr…

#16

for the second one I used the formula: Avg Asset varaince x [(1-p)/n + p] where p is Correlation which gives 1.04 = A