The Bank of Tinytown can only approve two loans but has four loans that the credit department
Fantastic news! We've Found the answer you've been seeking!
Question:
The Bank of Tinytown can only approve two loans but has four loans that the credit department has identified. Given the data presented in Table 1 what are the expected return and standard deviation of the portfolio that has the least risk? Given the covariances, can the calculation be simplified? What will the risk of the portfolio be, given the simplification?
Table 1 | ||||||
Item | Loan Size | Return | Variance and Covariance | |||
($ million) | (%) | Loan A | Loan B | Loan C | Loan D | |
Loan A | $ 1,600.0 | 11.0 | 0.1065 | |||
Loan B | $ 1,600.0 | 7.50 | 0.0425 | 0.0525 | ||
Loan C | $ 1,600.0 | 12.0 | - 0.1000 | 0.0650 | 0.0975 | |
Loan D | $ 1,600.0 | 8.0 | 0.0850 | 0.0355 | 0.0750 | 0.0825 |
Related Book For
Accounting
ISBN: 978-0324662962
23rd Edition
Authors: Jonathan E. Duchac, James M. Reeve, Carl S. Warren
Posted Date: