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Campbells father holds just one stock, East Coast Bank (ECB), which he thinks is a very lowrisk security.

Campbellʹs father holds just one stock, East Coast Bank (ECB), which he thinks
is a very low‐risk security. Campbell agrees that the stock is relatively safe, but he
wants to demonstrate that his fatherʹs risk would be even lower if he were more
diversified. Campbell obtained the following returns data shown for West Coast Bank
(WCB). Both have had less variability than most other stocks over the past 5 years.
Measured by the standard deviation of returns, by how much would his fatherʹs
historical risk have been reduced if he had held a portfolio consisting of 60% ECB and
the remainder in WCB?
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Dear student , please... View the full answer

CH_26t april.xlsx

Year
2002
2003
2004
2005
2006
Expected Return
Standard Deviation ECB
40%
-10%
35%
-5%
15%
15%
22.64% Correlation 0.3537 Portfolio
Stock
ECB
WCB WCB
40%
15%
-5%
-10%
35%
15%
22.64% Weights
60%
40%...

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