An analyst gathered the following information about a portfolio comprised of two assets: Asset-----Weight %----Expected Return E®----Expected Standard Deviation E(ó) X------------60-------------11%-----------------------------5% Y------------40-------------7%-------------------------------4% If the covariance of returns for the two assets equals 0.75, then the expected return and expected standard deviation of the portfolio are closest to: Expected Return Expected Standard Deviation A. 8.6% 4.3% B. 8.6% 18.7% C. 9.4% 4.3% D. 9.4% 18.7% Return is staright forward however the S.d there’s one thing I don’t get. So the forumula is: Sqrt( (W1^2.s1^2)+(W2^2.s2^2)+(2.w1,w2.Covab)) Right? However in the answers they expand out the covariance formula and substitute the covariance as the correlation coefficient. WHY?
> However in the answers they expand out the > covariance formula and substitute the covariance > as the correlation coefficient. WHY? because COVAR is the same as correll * sigam 1 * sigma 2 boom
9.4% is the exp rtn, for the st dev i am getting something wrong i did the formula above and sq rtted it, bc they want the st dev, but i must have done a cal error
I think the question should say "If the *correlation* of returns for the two assets equals I haven’t tried that, but I think that should be it.
i saw that in the mock too - confident that its an error. It should say correlation not covariance in the question.
Using .75 as the correlation, you get C: 9.4 & 4.3
it has to be an ERROR, those bastards. i did it assuming correl = .75 and got 4.3% for the st dev so the answer HAS TO BE C boom
Yeah thought it was an error. Thanks guys.
It is an error for sure… I wasted 30 mins yesterday, trying to figure out if I am missing any formula…sucks…
shahravi123 Wrote: ------------------------------------------------------- > It is an error for sure… > > I wasted 30 mins yesterday, trying to figure out > if I am missing any formula…sucks… that suks, you spent 30 min on 1 question??? move on!!! schweser does errata ALL the time, and with their site down, they need to get their #### together
daj224 Wrote: ------------------------------------------------------- > shahravi123 Wrote: > -------------------------------------------------- > ----- > > It is an error for sure… > > > > I wasted 30 mins yesterday, trying to figure > out > > if I am missing any formula…sucks… > > > that suks, you spent 30 min on 1 question??? > move on!!! schweser does errata ALL the time, and > with their site down, they need to get their #### > together this was a CFAI Mock exam question, so even worse… i wonder if these sample and mock exams are all the questions that flunked out of the final exam cut… hope they do better come Saturday!
I thought this was an error too… they had written Covariance, but meant Correlation…
And I just thought that I had completely forgotten how to calculate portfolio variance…Makes me feel a little better
Yes, i believe the exam is wrong. You really don’t have to calculate anything. 4.3% is definitely the answer by looking at the std of the two assets…