Following the Warren Buffett strategy of “Buy what you understand”, you decide t
ID: 2787077 • Letter: F
Question
Following the Warren Buffett strategy of “Buy what you understand”, you decide to create a two stock portfolio consisting of Facebook (FB) and Twitter (TWTR) stock. With your graduation present, you make the following investments:
If the correlation between Facebook and Twitter is 0.50, find the standard deviation of the social media portfolio.
Answer Format: Percentage Round to: 2 decimal places (Example: 9.24%, % sign required. Will accept decimal format rounded to 4 decimal places (ex: 0.0924))
STOCK: # of shares: Price Per share: Expected Return: Standard Deviation Facebook 60.00 $50.00 10.00% 20.00% Twitter 50.00 $40.00 15.00% 40.00%Explanation / Answer
market value of facebook = 60*50 = 3000
MV of Twitter = 50*40 = 2000
weight of FB = 3000/5000 = 0.6
weight of Twitter = 0.4
variance = (0.6*0.2)2 + (0.4*0.4)2 + 2*0.6*0..4*0.2*0.4*0.5 = 0.0592
standard dev = square root of variance = 24.33 %