# Question

Consider an equally weighted portfolio of stocks in which each stock has a volatility of 40%, and the correlation between each pair of stocks is 20%.

a. What is the volatility of the portfolio as the number of stocks becomes arbitrarily large?

b. What is the average correlation of each stock with this large portfolio?

a. What is the volatility of the portfolio as the number of stocks becomes arbitrarily large?

b. What is the average correlation of each stock with this large portfolio?

## Answer to relevant Questions

You currently hold a portfolio of three stocks, Delta, Gamma, and Omega. Delta has a volatility of 60%, Gamma has a volatility of 30%, and Omega has a volatility of 20%. Suppose you invest 50% of your money in Delta, and 25% ...Calculate (a) the expected return and (b) the volatility (standard deviation) of a portfolio that consists of a long position of $10,000 in Johnson & Johnson and a short position of $2000 inWalgreen’s.The Optima Mutual Fund has an expected return of 20%, and a volatility of 20%. Optima claims that no other portfolio offers a higher Sharpe ratio. Suppose this claim is true, and the risk-free interest rate is 5%.a. What is ...In mid-2009, Rite Aid had CCC-rated, 6-year bonds outstanding with a yield to maturity of 17.3%. At the time, similar maturity Treasuries had a yield of 3%. Suppose the market risk premium is 5% and you believe Rite Aid’s ...You would like to estimate the weighted average cost of capital for a new airline business. Based on its industry asset beta, you have already estimated an unlevered cost of capital for the firm of 9%. However, the new ...Post your question

0