A Bank Is Considering Adding Security Underwriting Services to the Services

question 1

Multiple Choice

A bank is considering adding security underwriting services to the services it offers.It has estimated that the expected return and standard deviation of its traditional service are 8% and 10% respectively.It has estimated that the expected return and standard deviation of its new securities underwriting services are 16% and 20% respectively.The correlation between these services has been estimated to be -0.3 and the bank estimates that 80% of its business will be from traditional services and 20% from the new services.What is the expected return of the new combined firm?

• A)8.0 percent
• B)9.6 percent
• C)12.0 percent
• D)14.4 percent
• E)16 percent

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Definitions:

Permutation

A permutation is an arrangement of all or part of a set of objects, with regard to the order of the arrangement.

Income

Financial gain accumulated over a period, such as wages from employment, profits from investments, or returns from assets.

Bootstrap Confidence Interval

A method for estimating the confidence interval of a parameter by resampling with replacement from an original dataset and calculating the interval from the bootstrap samples.

Bias

A systematic error or deviation from the true value in data collection or analysis, which can lead to false conclusions.