Quantitative Methods - Quantitative Methods Section 2

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46. The covariance matrix for a portfolio is given below.

Security A B
480140
B 140600

  • Option : A
  • Explanation : Standard Deviation of A = √480= 21.91 Standard Deviation of B = √600 = 24.49 Corelation = 0.26
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48. The table below shows information on two portfolios:

 Fund A Fund B
Portfolio weights (%) 4555
Expected returns (%) 1418
Standard deviations (%)  2532
Correlation between the
returns of Fund A and Fund B
0.85 

  • Option : B
  • Explanation : Calculate the portfolio standard deviation of returns as follows:
    Simply Easy Learning
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49. The table below shows weighting and returns of different asset classes comprising a portfolio:

Asset class Asset allocation (weight) (%)Asset class return (%)Correlation with equities class (%)
Equities  6522100
Bonds 308 30
Cash and equivalents 5125

  • Option : B
  • Explanation : The portfolio return is the weighted mean return and is calculated as:0.65 * 22 + 0.30 * 8 + 0.05 * 1 = 16.75.
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