A Bank Is Considering Adding Security Underwriting Services to the Services

question 6

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 standard deviation of the new combined firm?

• A)7.8 percent
• B)10.0 percent
• C)12.0 percent
• D)15.5 percent
• E)20.0 percent

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Definitions:

Tyramine

A naturally occurring monoamine compound found in certain foods that can affect blood pressure and is particularly relevant for individuals taking MAOI antidepressants.

Blood Pressure

The force exerted by circulating blood on the walls of blood vessels, typically measured in millimeters of mercury (mmHg).

Tricyclics

A class of antidepressant medications that work by increasing levels of norepinephrine and serotonin in the brain to improve mood.

SSRIs

Selective Serotonin Reuptake Inhibitors, a class of drugs commonly used to treat depression and anxiety disorders by increasing serotonin levels in the brain.