Table 1 shows the value of a portfolio consisting of security 1 and security 2. The respective volatilities and weights of the two securities are provided as well as the correlation coefficient between them. Based on this information: a) Estimate the variance and standard deviation of the portfolio consisting of security 1 and security 2. b) If the volatility of security 2 increases by 10% but the weight of security 2 in the portfolio is 15% what is the impact in the portfolio standard deviation? Table 1 Daily Volatility Weight Daily Volatility Weight Portfolio value Correlation coefficient Security 1 4% 70% Security 2 5% 30% £40 million 0.7
Table 1 shows the value of a portfolio consisting of security 1 and security 2. The respective volatilities and weights of the two securities are provided as well as the correlation coefficient between them. Based on this information: a) Estimate the variance and standard deviation of the portfolio consisting of security 1 and security 2. b) If the volatility of security 2 increases by 10% but the weight of security 2 in the portfolio is 15% what is the impact in the portfolio standard deviation? Table 1 Daily Volatility Weight Daily Volatility Weight Portfolio value Correlation coefficient Security 1 4% 70% Security 2 5% 30% £40 million 0.7
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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Transcribed Image Text:Table 1 shows the value of a portfolio consisting of security 1 and
security 2. The respective volatilities and weights of the two securities
are provided as well as the correlation coefficient between them.
Based on this information:
a) Estimate the variance and standard deviation of the portfolio
consisting of security 1 and security 2.
b) If the volatility of security 2 increases by 10% but the weight of
security 2 in the portfolio is 15% what is the impact in the portfolio
standard deviation?
Table 1
Daily Volatility
Weight
Daily Volatility
Weight
Portfolio value
Correlation
coefficient
Security 1
4%
70%
Security 2
5%
30%
£40 million
0.7
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