Standard Devation of PORT

CFA Level I
#1

An analyst gathered the following information about a common stock: Probabilit…Possible Rate of Return 0.35…8% 0.3…10% 0.25…15% 0.1…20% The expected return and expected standard deviation of returns, respectively, for the common stock are closest to: A. 12% and 3.9%. B. 12% and 15.3%. C. 14% and 3.9%. D. 14% and 15.3%. Answer is A…I got 12%…not getting 3.9%

#2

If it helps any, so you don’t have to do that long equation the sq. root of 15.3 = 3.9%

#3

[.35*(8%-12%)^2+.3*(10%-12%)^2+.25*(15%-12%)^2+.1*(20%-12%)^2]^(1/2)=3.9306

#4

Now that’s a trick I must learn!:slight_smile:

#5

I get 11.55 and 3.9046 Are you solving for variance and not stddev? Are you squaring the deviation from the mean before weighting the value?

#6

-_- forward looking std dev = (sum(i=1…n) where Pi(Xi-Xbar)^2)^.5 you should get the answer. in other words, [.35(8-12)^2+.3(10-12)^2+.25(15-12)^2+.1(20-12)^2]^.5=3.93065

#7

Expected Stand Deviation - x- 5% Y-4% Cov = .75 Weights x 60% Y 40% What is expected standard devation of port - Variance =( .6^2 * 5^2 )+ (.4^2 * 4^2) + 2(.6)(.4)(5)(4)(.75) = (9) + (2.56) + (7.2) = 18.76 Standard Deviation = Sqrt(18.76) = 4.33 isnt the last part of formula - 2wwCOV (WHY IS Standard DEviation Used) in formula Above??

#8

map, I will gladly find the shortcuts on the math if you will follow up and do the math on problems that don’t have shortcuts…for me! LOL

#9

Expected Stand Deviation - x- 5% Y-4% Cov = .75 Weights x 60% Y 40% What is expected standard devation of port - Variance =( .6^2 * 5^2 )+ (.4^2 * 4^2) + 2(.6)(.4)(5)(4)(.75) = (9) + (2.56) + (7.2) = 18.76 Standard Deviation = Sqrt(18.76) = 4.33 isnt the last part of formula - 2wwCOV (WHY IS Standard DEviation Used) in formula Above??

#10

shahravi123 Wrote: ------------------------------------------------------- > Expected Stand Deviation - > > x- 5% > Y-4% > > Cov = .75 > > Weights > > x 60% > Y 40% > > What is expected standard devation of port - > > Variance =( .6^2 * 5^2 )+ (.4^2 * 4^2) + > 2(.6)(.4)(5)(4)(.75) = (9) + (2.56) + (7.2) = > 18.76 > > Standard Deviation = Sqrt(18.76) = 4.33 > > isnt the last part of formula - 2wwCOV (WHY IS > Standard DEviation Used) in formula Above?? You’re answering the wrong question. Standard deviation, not covariance.

#11

You’re bag is full of tricks:) I’ve seen!

#12

this is standard deviation of a two stock portfolio. first question is about expectations of one stock the second is the computing expected std dev of two stocks held in one portfolio. (hence portfolio management)

#13

yes but variance of port is - w1^2* Variance1 + W2^2* Varinace +2*w1 *w2*COV

#14

the first question is not a portfolio… its one stock.

#15

shahravi123 Wrote: ------------------------------------------------------- > Expected Stand Deviation - > > x- 5% > Y-4% > > Cov = .75 > > Weights > > x 60% > Y 40% > > What is expected standard devation of port - > > Variance =( .6^2 * 5^2 )+ (.4^2 * 4^2) + > 2(.6)(.4)(5)(4)(.75) = (9) + (2.56) + (7.2) = > 18.76 > > Standard Deviation = Sqrt(18.76) = 4.33 > > isnt the last part of formula - 2wwCOV (WHY IS > Standard DEviation Used) in formula Above?? 1) Why is this post written like a ransom note? 2) I think there is a typo there and the 0.75 is supposed to be a correlation not a covariance.