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- A portfolio with 50% invested in Nokia and 50% in Nestlé has a variance of 445,
which is equivalent to a standard deviation of 21.1%. For a portfolio of n stocks the portfolio variance is equal to:
n (29) Portfolio variance n ¦¦ w w V
i j ij i1 j1 Download free ebooks at bookboon.com
34 Corporate Finance Note that when i=j,
stock i and j as ij = Risk, return and opportunity cost of capital is the variance of stock i,
ij i j. ij 2
i. Similarly, when ij, ij is the covariance between 5.4.2 Portfolio's market risk The market risk of a portfolio of assets is a simple weighted average of the betas on the individual assets.
n (30) Portfolio beta ¦w E
i i i1 Where wi denotes the fraction of the portfolio invested in stock i and i is market risk of stock i. Example:
- Consider the portfolio consisting of three stocks A, B and C.
1000 10% 0.8 Stock B 1500 12% 1.0 Stock C - Beta Stock A - Expected return 2500 14% 1.2 What is the beta on this...
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This note was uploaded on 10/26/2012 for the course 19 19 taught by Professor - during the Spring '12 term at Sunway University College.
- Spring '12