# Question

Using the data in Problem 23, plot the volatility as a function of the number of firms in the two portfolios.

In Problem 23, Consider an economy with two types of firms, S and I. S firms all move together. I firms move independently. For both types of firms, there is a 60% probability that the firms will have a 15% return and a 40% probability that the firms will have a −10% return. What is the volatility (standard deviation) of a portfolio that consists of an equal investment in 20 firms of (a) type S, and (b) type I?

In Problem 23, Consider an economy with two types of firms, S and I. S firms all move together. I firms move independently. For both types of firms, there is a 60% probability that the firms will have a 15% return and a 40% probability that the firms will have a −10% return. What is the volatility (standard deviation) of a portfolio that consists of an equal investment in 20 firms of (a) type S, and (b) type I?

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