Reference no: EM13827824

Problem:

                            National Benchmark        Bank A        Bank B
Consumer Loans              50 percent        65 percent    35 percent
Commercial Loans            50 percent        35 percent    65 percent

1. Estimate the standard deviation of Bank A's asset allocation proportions relative to the national benchmark.

a. 15.00 percent.
b. 21.21 percent.
c. 29.89 percent.
d. 34.32 percent.
e. 40.44 percent.

2. Estimate the standard deviation of Bank B's asset allocation proportions relative to the national benchmark.

a. 40.44 percent.
b. 34.32 percent.
c. 29.89 percent.
d. 21.21 percent.
e. 15.00 percent.

3. Using standard deviations, which bank is in a better position if the average earnings on the assets of Bank A is 11 percent and Bank B is 12 percent (ignore all other factors)?

a. Bank B, because it earnings of 12 percent is higher than Bank A's 11 percent while, its standard deviation is lower. 
b. Bank B, because its earnings of 12 percent is higher compared to Bank A's 11 percent, while its standard deviation is higher.
c. Bank B, because its earnings of 12 percent is higher compared to Bank A's 11 percent, while its standard deviation is the same.
d. Bank A, because although its earnings of 11 percent is lower compared to Bank B's 12 percent, its standard deviation is significantly lower.
e. Bank A, because although its earnings of 11 percent is lower compared to Bank A's 12 percent, its standard deviation is the same.

Additional Information:

The question is from Finance as well as it is about a scenario where we need to compute the standard deviation for asset allocation proportion of two banks and compare it with national benchmark. The computations have been given in the solution.