In which of the cases is the volatility lower than that of the original stocks? (Select the best choice below.) O A. In all of the cases. O B. In cases (b), (c), (d) and (e). OC. In none of the cases. OD. In cases (d) and (e).

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
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Arbor Systems and Gencore stocks both have a volatility of 37%. Compute the volatility of a portfolio with 50% invested in each stock if the correlation between the stocks is (a) + 1.00, (b) 0.50, (c) 0.00, (d) – 0.50, and (e) - 1.00. In which of the
cases is the volatility lower than that of the original stocks?
If the correlation is + 1.00, the volatility of the portfolio is %. (Round to one decimal place.)
If the correlation is 0.50, the volatility of the portfolio is %. (Round to one decimal place.)
If the correlation is 0.00, the volatility of the portfolio is
%. (Round to one decimal place.)
If the correlation is - 0.50, the volatility of the portfolio is
%. (Round to one decimal place.)
If the correlation is - 1.00, the volatility of the portfolio is %. (Round to one decimal place.)
In which of the cases is the volatility lower than that of the original stocks? (Select the best choice below.)
A. In all of the cases.
B. In cases (b), (c), (d) and (e).
C. In none of the cases.
O D. In cases (d) and (e).
Transcribed Image Text:Arbor Systems and Gencore stocks both have a volatility of 37%. Compute the volatility of a portfolio with 50% invested in each stock if the correlation between the stocks is (a) + 1.00, (b) 0.50, (c) 0.00, (d) – 0.50, and (e) - 1.00. In which of the cases is the volatility lower than that of the original stocks? If the correlation is + 1.00, the volatility of the portfolio is %. (Round to one decimal place.) If the correlation is 0.50, the volatility of the portfolio is %. (Round to one decimal place.) If the correlation is 0.00, the volatility of the portfolio is %. (Round to one decimal place.) If the correlation is - 0.50, the volatility of the portfolio is %. (Round to one decimal place.) If the correlation is - 1.00, the volatility of the portfolio is %. (Round to one decimal place.) In which of the cases is the volatility lower than that of the original stocks? (Select the best choice below.) A. In all of the cases. B. In cases (b), (c), (d) and (e). C. In none of the cases. O D. In cases (d) and (e).
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