Edu applications are now open for entry in september

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Unformatted text preview: rease your career choices and stand out from the crowd. London Business School Regent’s Park London NW1 4SA United Kingdom Tel +44 (0)20 7000 7573 Email [email protected] Applications are now open for entry in September 2011. For more information visit email [email protected] or call +44 (0)20 7000 7573 Download free ebooks at 33 Corporate Finance Risk, return and opportunity cost of capital 5.4.1 Portfolio variance Calculating the variance on a portfolio is more involved. To understand how the portfolio variance is calculated consider the simple case where the portfolio only consists of two stocks, stock 1 and 2. In this case the calculation of variance can be illustrated by filling out four boxes in the table below. Table 2: Calculation of portfolio variance Stock 1 Stock 2 22 Stock 1 w1 1 w 1 w 2 12 w 1 w 2 Stock 2 w 1 w 2 12 w 1 w 2 12 1 2 w2 2 22 12 1 2 In the top left corner of Table 2, you weight the variance on stock 1 by the square of the fraction of the portfoli...
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