Doubt regarding Quant question

Posts: 6
Joined: Tue Dec 18, 2012 10:57 pm

Doubt regarding Quant question

Postby bhavyamital » Tue Dec 18, 2012 10:59 pm

Mital Tiene’s investment portfolio currently consists of stocks in two companies, 40% in Drysdahl Banking and the remaining amount in Clampett Oil. Performance measurement information for these two stocks is given in the table below:

Stock Expected Return Standard Deviation

Drysdahl Banking 10.50% 8.5%

Clampett Oil 16.55% 25.0%

The covariance between the two stocks is 0.001. Tiene is considering adding a third stock, Hilbilee Investors. Hilbilee Investor’s correlation coefficient with the current portfolio is 0.38.

Which of the following statements is least accurate?

A) As Tiene diversifies, he will reduce the portfolio's unsystematic risk.

B) With Hilbilee added to the portfolio, the variance could be 0.026.

C) The standard deviation of returns for the current portfolio is 15.5%.

Can somebody plz explain all three choices and which one is correct


Finance Junkie
Posts: 356
Joined: Wed Apr 11, 2012 11:26 am

Re: Doubt regarding Quant question

Postby content.pristine » Thu Dec 27, 2012 1:54 pm

Hi Bhavya,

Have you had your Portfolio Management classes yet?
This question is a quants application in portfolio management.
Once you study Portfolio Management, this question should be clear.
Do let me know whether this is the case.


Return to “CFA Level I”



Global Association of Risk Professionals, Inc. (GARP®) does not endorse, promote, review or warrant the accuracy of the products or services offered by EduPristine for FRM® related information, nor does it endorse any pass rates claimed by the provider. Further, GARP® is not responsible for any fees or costs paid by the user to EduPristine nor is GARP® responsible for any fees or costs of any person or entity providing any services to EduPristine Study Program. FRM®, GARP® and Global Association of Risk Professionals®, are trademarks owned by the Global Association of Risk Professionals, Inc

CFA Institute does not endorse, promote, or warrant the accuracy or quality of the products or services offered by EduPristine. CFA Institute, CFA®, Claritas® and Chartered Financial Analyst® are trademarks owned by CFA Institute.

Utmost care has been taken to ensure that there is no copyright violation or infringement in any of our content. Still, in case you feel that there is any copyright violation of any kind please send a mail to and we will rectify it.