1. If GE has an annual risk of 27.4 percent, what is the volatility of monthly GE returns? 2....

Question

1. If GE has an annual risk of 27.4 percent, what is the volatility of monthly GE returns?

2. Stock A has 25 percent risk, stock B has 50 percent risk, and their returns are 50 percent correlated. What fully invested portfolio of A and B has minimum total risk? (Hint: Try solving this graphically (e.g. in Excel), if you cannot determine the answer mathematically.)

Rochak · Accepted Answer

a. Volatility of monthly GE returns = Annual Risk/SQRT (12)
= 27.4%/SQRT (12)
= 7.91%
b. Total Risk = SQRT (0.5^2*25%^2*0.5^2*50%^2+2*50%*0.5*0.5*50%*25%)
= 17.95%

1. If GE has an annual risk of 27.4 percent, what is the volatility of monthly GE returns? 2. Stock A has 25 percent risk, stock B has 50 percent risk, and their returns are 50 percent correlated....

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