Consider an economy with two types of firms, Sand I. S firms all move together. I firms moveindependently. For both types of firms, there is a39% probability that the firm will have a 27 %return and a 61 % probability that the firm will havea-18% return. What is the volatility (standarddeviation) of a portfolio that consists of an equalinvestment in: a. 22 firms of type S? b. 22 firms oftype I? a. What is the volatility (standard deviation)of a portfolio that consists of an equal investmentin 22 firms of type S? Standard deviation is%. (Round to two decimal places.) b. What isthe volatility (standard deviation) of a portfolio thatconsists of an equal investment in 22 firms of typeI? Standard deviation is _ %. (Round to twodecimal places.)

Step 1: we first compute the expected return and standard deviation of returns of each type of…

Answered: Consider an economy with two types of…

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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K Consider an economy with two types of firms, S and I. S firms all move together. I firms move independently. For both types of firms, there is a 29% probability that the firm will have a 24% return and a 71% probability that the firm will have a -11% return. What is the volatility (standard deviation) of a portfolio that consists of an equal investment in: a. 40 firms of type S? b. 40 firms of type I? a. What is the volatility (standard deviation) of a portfolio that consists of an equal investment in 40 firms of type S? Standard deviation is%. (Round to two decimal places.) b. What is the volatility (standard deviation) of a portfolio that consists of an equal investment in 40 firms of type I? Standard deviation is %. (Round to two decimal places.)
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