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ycow [4]
1 year ago
14

What is the standard deviation of the market portfolio if the standard deviation of a fully diversified portfolio with a beta of

1.25 equals 18%
Mathematics
1 answer:
Nina [5.8K]1 year ago
3 0

Answer:

22.5%

Step-by-step explanation:

let the standard deviation for market portfolio = σₙ

Also let the standard deviation for fully diversified portfolio = σₓ

<u>To calculate fully diversified portfolio</u>

fully diversified portfolio has <em>σₓ = βσₙ</em>

From the given question beta (β) = 1.25

Also standard deviation for market portfolio (σₙ)  = 18% = 0.18

<em>From the equation above,  σₓ = βσₙ </em>= 1.25×0.18 = 0.225

                                                             = 22.5% (converting to percentage)

<em></em>

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