Which of the following is closest to the expected standard deviation of the client’s portfolio if 10% of the portfolio is invested in the Quality Commodity Fund? A) 9.6%. B) 14.2%. C) 16.0%. D) 18.2%. Your answer: C was incorrect. The correct answer was B) 14.2%. The covariance is 51.84 = 0.8 × (-0.2) × 324. The variance is 200.59 = (0.9 × 0.9 × 16 × 16) + (0.1 × 0.1 × 16 × 16) + (2 × 0.9 × 0.1 × (-51.84). The square root of the variance is approximately 14.2%. in this case, you given betai =.8, betaj = -.2, mkt variance = 324%. why is covariance positive? i would have thought it would have been =-51.84 am i wrong on this? thanks, dirrty
Typo. Formula for covariance is betai*betaj*variance of market, and -51.84 is used in the final calculation.