Campbells father holds just only one stock east coast bank, Ask an Expert

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Campbell's father holds just only one stock, East Coast Bank (ECB), which he thinks is a very low-risk security. Campbell agrees that the stock is relatively safe, but he wants to demonstrate that his father's risk would be even lower if he were diversified. Campbell obtained the following returns data for West Coast Bank (WCB). Both have had less variability than most other stocks over the past 5 years. Measured by the standard deviation of returns, by how much would his father's historical risk have been reduced if he had held a portfolio consisting of 60% ECB and the remainder in WCB? Please show work step by step.

Year ECB WCB

2010 20.00% 25.00%

2011 -10.00% 15.00%

2012 35.00% -5.00%

2013 -5.00% -10.00%

2014 15.00% 35.00%

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91596649

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