exam 2 formula sheet

# exam 2 formula sheet - Diversifcaton correlaton coeFcienT...

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Diversification: correlation coefficient - covariance/investment a*b. covariance of returns – psb*o*o. [Given the following expectations 2 portfolios….1-percentage of stocks in portfolio or ws=wb. (wb*portfoliob)^2+(ws*portfolio s or a)^2+2(wb*portfoliob)(ws*portfolio s or a)*psb=o2, take the square root of that number for your answer]..(. Expected return – risk free rate / stnd dev = reward to variability. [A pension fund manager..stock/bond s and b….first calculate wb. Wb is standard deviation of s squared – standard deviation of b*standard deviation of s*correlation between the fund returns/standard deviation of s squared + standard deviation of b squared – 2*standard deviation of b* standard deviation of s* correlation between the fund returns = wb. Ws=1-wb. Wb*expected return for b+ws*expected return for s=weight average. Standard deviation=(wb*standard deviation of b)^2+ (ws*standard deviation of s)^2+2((wb*standard deviation of b)(ws*standard deviation of s)*correlation between the fund return=standard deviation^2. Take square root=answer.] [wb=bond fund b*standard

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