Consider an economy with two types of firms, S and I. S firms always move together, but I firms move independently. For both types of firms, there is a 60% probability that the firm will have a 21% return. Otherwise, the firm will have a -20% return. The standard deviation for the return on a portfolio of 20 type S firms is closest to

Consider an economy with two types of firms, S and I. S firms always move together, but I firms move independently. For both types of firms, there is a 60% probability that the firm will have a 21% return. Otherwise, the firm will have a -20% return. The standard deviation for the return on a portfolio of 20 type S firms is closest to

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 4P: An analyst has modeled the stock of a company using the Fama-French three-factor model. The market...

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Consider an economy with two types of firms, S and I. S firms always move together, but I firms move independently of each other. For both types of firm there is a 60% probability that the firm will have a 20% return and a 40% probability that the firm will have a -30% return. The standard deviation for the return on a portfolio of 20 type S firms is closest to: 24% 23% 15% 35%
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 60% probability that the firm will have a 15% return and a 40% probability that the firm will have a −10% return. What is the volatility (standard deviation) of a portfolio that consists of an equal investment in: a. 20 firms of type S? b. 20 firms of type I?
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