A Portfolio Has 40% of Its Value in IBM Shares

question 57

Multiple Choice

A portfolio has 40% of its value in IBM shares and the rest in Microsoft (MSFT) . The volatility of IBM and MSFT are 40% and 30%, respectively, and the correlation between IBM and MSFT is -0.3. What is the standard deviation of the portfolio?

• A) 19.17%
• B) 18.16%
• C) 22.20%
• D) 20.18%

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Definitions:

Net Float

The difference between checks written against and deposited in an account, which affects the balance available in the account.

Collection Float

The time period between when a payment is made by a customer and when the funds become available in the company's account.

Mail Float

The time gap between when a payment is sent via mail and when it is received and processed, affecting the time when the funds become available.

Processing Float

The time difference between when a check is written and when it is actually cleared and funds are deducted from the account.