Abu Dhabi Commercial Bank decides to expand its service menu to include the underwriting of new...

 

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Abu Dhabi Commercial Bank decides to expand its service menu to include the underwriting of new security offerings (i.e. investment banking) as well as offering traditional lending and deposit services. It discovers that the expected return and risk associated with these two sets of service offerings are as follows: Expected return - traditional services Expected return - security underwriting Standard deviation - traditional services Standard deviation - security underwriting Correlation of returns between two services Proportion of revenue - traditional services Proportion of revenue security underwriting 4.5% 13% 3.5% 7% -0.25 75% 25% Please calculate the effects of the new service on the banking company's overall return and risk as captured by the bank's standard deviation of returns. Abu Dhabi Commercial Bank decides to expand its service menu to include the underwriting of new security offerings (i.e. investment banking) as well as offering traditional lending and deposit services. It discovers that the expected return and risk associated with these two sets of service offerings are as follows: Expected return - traditional services Expected return - security underwriting Standard deviation - traditional services Standard deviation - security underwriting Correlation of returns between two services Proportion of revenue - traditional services Proportion of revenue security underwriting 4.5% 13% 3.5% 7% -0.25 75% 25% Please calculate the effects of the new service on the banking company's overall return and risk as captured by the bank's standard deviation of returns.

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