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1 March, 05:02

Consider an equally weighted portfolio that contains five stocks. If the average volatility of these stocks is 40% and the average correlation between the stocks is. 5, then the volatility of this equally weighted portfolio is closest to:

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  1. 1 March, 05:29
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    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
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