Answer:
The volatility of this equally weighted portfolio is closest to 0.31
Explanation:
Individual Stock + ( 1 - 1/n) * Average Covariance between the stocks
Var = ( 1 / 5) (0.40)2 + ( 1 - 1/5) (0.5( (0.4) (0.4)
Var = 0.096
standard deviation = Square root of variance
= Square root of 0.096
= 0.31
The volatility of this equally weighted portfolio is closest to 0.31 when the weighted portfolio contains five stocks with an average volatility of 40%.
The portfolio is simply defined as the collection of investments. The term portfolio guides to any mixture of financial assets like stocks, bonds, and cash.
Computation of the volatility:
First, we have to find the variance:
[tex]=\text{Individual Stock }+ ( 1 - \frac{1}{n} ) \times\text{Average Covariance between the stocks}[/tex]
[tex]=(\frac{1}{5}\times0.40)\times 2+(1-\frac{1}{5})\times(0.05\times0.0\times0.04)\\=0.096[/tex]
Now, the standard deviation is:
[tex]\text{Standard Deviation} = \text{Square Root of Variance}\\\\\text{Standard Deviation} =\sqrt{0.096} \\\\\text{Standard Deviation} =0.31[/tex]
Therefore, the volatility of this equally weighted portfolio is closest to 0.31.
Learn more about the portfolio, refer to:
https://brainly.com/question/10702105
