UGBA08 - Summer 2008 Ismail Ceylan UGBA 103 Discussion...

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Summer 2008 Ismail Ceylan UGBA 103 Discussion Section June 23, 2008 Page 1 of 2 Discussion Section #8 Problem 1: Here are some historical data on the risk characteristics of Dell and Home Depot: Dell Home Depot β (beta) 1.25 1.53 Yearly standard deviation of return (%) 29.32 29.27 Assume the standard deviation of the return on the market was 15%. a- The correlation coefficient of Dell’s return versus Home Depot’s is .59. What is the standard deviation of a portfolio invested half in Dell and half in Home Depot. b- What is the standard deviation of a portfolio invested one-third in Dell, one-third in Home Depot, and one-third in risk-free Treasury bills? c- What is the standard deviation if the portfolio is split evenly between Dell and Home Depot and is Fnanced at 50% margin, i.e., the investor puts up only 50% of the total amount and borrows the balance from the broker? d- What is the approximate standard deviation of a portfolio composed of 100 stocks with betas of 1.25 like Dell? How about 100 stocks like Home Depot? (Assume that the portfolio is
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This note was uploaded on 02/12/2012 for the course UGBA 101A taught by Professor Mccullough during the Spring '08 term at University of California, Berkeley.

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UGBA08 - Summer 2008 Ismail Ceylan UGBA 103 Discussion...

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