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AAFM GLO_CWM_LVL_1 Exam - Topic 2 Question 24 Discussion

Actual exam question for AAFM's GLO_CWM_LVL_1 exam
Question #: 24
Topic #: 2
[All GLO_CWM_LVL_1 Questions]

Given the following information:

What is the expected return and standard deviation of the portfolio if 50% of funds invested in each stock? What would be the impact if the correlation coefficient were 0.6 instead of 0.2?

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Suggested Answer: C

by Glen at May 04, 2022, 06:40 AM

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Chau
3 months ago
I agree with B, seems like a solid calculation!
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Corrie
3 months ago
Wait, how does a higher correlation affect the standard deviation?
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Adria
3 months ago
Definitely leaning towards C, but not sure about the numbers.
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Maryanne
3 months ago
I think A might actually be correct.
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Mozell
4 months ago
Looks like option B is the best choice!
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Allene
4 months ago
}
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Avery
4 months ago
]
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Dianne
4 months ago
"I’ve seen similar practice questions on ρ changes and 50/50 weights in the last set."}
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Dianne
4 months ago
"If ρ goes from 0.2 to 0.6, the cross-term grows and sd rises; diversification benefits shrink."},
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Dianne
5 months ago
"For sd we used σ_p = sqrt(0.25σ1^2 + 0.25σ2^2 + 0.5σ1σ2ρ)."},
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Dianne
5 months ago
"Equal weights, so r_p = 0.5(r1 + r2); that was the standard two-asset setup."},
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Quentin
5 months ago
[
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Kasandra
5 months ago
{
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Marshall
5 months ago
I'm feeling pretty confident about this one. I've worked with global temporary tables before, so I should be able to identify the correct statements.
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Dana
5 months ago
I know this is a portfolio optimization problem. I'll first calculate the portfolio return by taking the weighted average of individual stock returns.
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