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AAFM GLO_CWM_LVL_1 Exam - Topic 5 Question 50 Discussion

Consider two stocks, A and BThe returns on the stocks are perfectly negatively correlated.What is the expected return of a portfolio comprising of stocks A and B when the portfolio is constructed to drive the standard deviation of portfolio return to zero?
B) 20.48
A) 22.24
C) 19.57
D) 24.62

AAFM GLO_CWM_LVL_1 Exam - Topic 5 Question 50 Discussion

Actual exam question for AAFM's GLO_CWM_LVL_1 exam
Question #: 50
Topic #: 5
[All GLO_CWM_LVL_1 Questions]

Consider two stocks, A and B

The returns on the stocks are perfectly negatively correlated.

What is the expected return of a portfolio comprising of stocks A and B when the portfolio is constructed to drive the standard deviation of portfolio return to zero?

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Suggested Answer: B

by Delmy at Sep 22, 2022, 10:28 AM

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Irma
10 months ago
I believe the answer is 20.48, right?
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Reena
10 months ago
I’m not sure about that, seems like a tricky calculation.
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Helene
11 months ago
I think it’s surprising that you can get a zero standard deviation with negative correlation.
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Billye
11 months ago
Totally agree, it's all about balancing the portfolio!
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Soledad
11 months ago
The expected return is based on the weights of A and B.
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Macy
11 months ago
I feel like the answer might be around 20% based on my previous studies, but I can't remember the exact number.
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Penney
11 months ago
If I recall correctly, the expected return should be a weighted average of the two stocks, but I’m confused about how to set the weights to achieve zero standard deviation.
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Eric
11 months ago
I think I practiced a similar question where we had to find the expected return when the standard deviation is zero, but I’m not entirely sure about the exact calculations.
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Kristofer
11 months ago
I remember that when stocks are perfectly negatively correlated, we can eliminate risk by balancing the weights in the portfolio.
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Rosina
11 months ago
The wording of these options is tricky, I need to make sure I understand the nuances.
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Hildegarde
11 months ago
Hmm, this is an interesting one. I think posting the weekly coupon flyer as a PDF could be a good way to reach more customers online.
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Lottie
12 months ago
Hmm, I'm a bit confused by the GTID sets and how they need to be set on the slave to avoid replicating unwanted transactions. I'll need to review my notes on GTID-based replication to make sure I understand this properly.
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