Florida Company (FC) and Minnesota Company (MC) are both service companies. Their stock returns for the...

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Florida Company (FC) and Minnesota Company (MC) are both servicecompanies. Their stock returns for the past three years were asfollows: FC: ?5 percent, 15 percent, 20 percent; MC: 8 percent, 8percent, 20 percent. What is the standard deviation of a portfoliowith 50 % of the funds invested in FC and 50 % in Mc ?(Ignore thecorrection for the loss of a degree of freedom set out in thetext)

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3.7 Ratings (367 Votes)

Year	Return FC Rfc	Mean retrun Fc Mfc	(Rfc-Mfc)^2	Return MC Rmc	Mean Return MC =Mmc	(Rmc-Mmc)^2	(Rfc-Mfc)(Rmc-Mmc)
1	-5.00%	10%	0.0225	8.00%	12.00%	0.0016	0.006
2	15.00%	10%	0.0025	8.00%	12.00%	0.0016	-0.002
3	20.00%	10%	0.01	20.00%	12.00%	0.0064	0.008
Total		30.00%		0.035	36.00%	0.0096	0.012
Mean return		10%			12.00%

Sample Variance=Variance Total/(n-1)			0.0175			0.0048
Covariance =0.0120/2=	0.006
Weight of FC =w1=	0.5
Weight of MC =w2=	1
Variance Portfolio= w1^2var Fc+w2^2varMc+2w1w2*CovarianceFcMc
=0.50^20.0175+0.50^20.0048+20.500.50*0.0060
=	0.008575
So Variance of Portfolio= 0.008575
Standard Devaition = Sqaure root of Varaince = 0.092601

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Florida Company (FC) and Minnesota Company (MC) are both servicecompanies. Their stock returns for the past three years were asfollows: FC: ?5 percent, 15 percent, 20 percent; MC: 8 percent, 8percent, 20 percent. What is the standard deviation of a portfoliowith 50 % of the funds invested in FC and 50 % in Mc ?(Ignore thecorrection for the loss of a degree of freedom set out in thetext)

Florida Company (FC) and Minnesota Company (MC) are both service companies. Their stock returns for the...

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