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Port Management calc question
This is from the Qbank regarding calculation of portfolio variance.
I am confused as to why they used they calculated the way they did.
Company A STDEV 60%
Company B STDEV 30%
Weight is 50% each
Covariance is 576
The way the answer calculated it is as follows
portfolio variance = (0.5 x 0.5)(60 x 60) + (0.5 x 0.5)( 30 x 30) + 2 x 0.5x 0.5 x 576) = 1413
The answer would be very different if you calculated using the stdev in decimal form.
Now... shouldn't the 60% and 30% be in decimal form? But then the covariance should also be in.. decimal form?
What am I missing here? |
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