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 thecases 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).

Stock Volatility is the fluctuation in the prices of the stock on either upside or downside.

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).

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).

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 22P

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Concept explainers

Portfolio Management

Portfolio management is the process by which an investor decides that how the person will invest in a variety of assets in order to get a desired return in the future. A portfolio means a pool of assets that includes securities, bonds, and other investment instruments which helps in risk minimization of the money that has been invested. In other words, it can be said that a portfolio means a combination of assets in which an investor decides to invest their money in order to get a lump sum return in the future or even a series of cash flow that the person is expecting at the end of their job life.

Question

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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).

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