Emma Li is considering investing in two securities, A and B, and the relevant information is given below: State of Economy Probability Return on Security A (%) Return on Security B (%) Bear 0.2 4 1.2 Bull 1-0.2 10 1.2 Suppose Emma borrowed from her friend 99 shares of security B, which is currently sold at $74, and sold all shares of the security. (She promised her friend she would pay her back in a year with the same number of shares of security B). Then she bought security A with the proceeds obtained in the sales of security B shares and the cash of $2,549 she owned. Calculate the standard deviation of her portfolio. Report your answer in decimal form, rounded to 4 decimal points.

Emma Li is considering investing in two securities, A and B, and the relevant information is given below: State of Economy Probability Return on Security A (%) Return on Security B (%) Bear 0.2 4 1.2 Bull 1-0.2 10 1.2 Suppose Emma borrowed from her friend 99 shares of security B, which is currently sold at $74, and sold all shares of the security. (She promised her friend she would pay her back in a year with the same number of shares of security B). Then she bought security A with the proceeds obtained in the sales of security B shares and the cash of $2,549 she owned. Calculate the standard deviation of her portfolio. Report your answer in decimal form, rounded to 4 decimal points.

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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Question

Emma Li is considering investing in two securities, A and B, and the relevant
information is given below:
State of Economy Probability Return on Security A (%) Return on Security B (%)
Bear
0.2
4
1.2
Bull
1-0.2
10
1.2
Suppose Emma borrowed from her friend 99 shares of security B, which is currently
sold at $74, and sold all shares of the security. (She promised her friend she would
pay her back in a year with the same number of shares of security B). Then she
bought security A with the proceeds obtained in the sales of security B shares and
the cash of $2,549 she owned.
Calculate the standard deviation of her portfolio. Report your answer in decimal
form, rounded to 4 decimal points.

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