Cameron Corporation Cameron plc would like to simultaneously borrow Japanese yen (¥) and Sudanese dinar (SDD) for a six-month period. Cameron would like to determine the expected financing rate and the variance of a portfolio consisting of 30% yen and 70% dinar. Cameron has gathered the following information: Mean effective financing rate of Japanese yen for six months 4% Mean effective financing rate of Sudanese dinar for six months 1% Standard deviation of Japanese yen's effective financing rate .10 Standard deviation of Sudanese dinar's effective financing rate .20 Correlation coefficient of effective financing rates of these two currencies .23 What is the expected standard deviation of the portfolio contemplated by Cameron?
A) 2.24%
B) 14.98%
C) 2.89%
D) 17.00%
E) None of the above

Question

Quizplus · Accepted Answer

The expected standard deviation of the portfolio can be calculated using the formula for the standard deviation of a two-asset portfolio: √(w₁²σ₁² + w₂²σ₂² + 2w₁w₂σ₁σ₂ρ), where w₁ and w₂ are the weights, σ₁ and σ₂ are the standard deviations, and ρ is the correlation coefficient. Plugging in the values: √(0.3² * 0.10² + 0.7² * 0.20² + 2 * 0.3 * 0.7 * 0.10 * 0.20 * 0.23) = 14.98%.

Cameron Corporation Cameron Plc Would Like to Simultaneously Borrow Japanese