Reference no: EM13827813

Problem:

A.                               National Banks        Bank A             Bank B

Real Estate Loans        60 percent             30 percent        56 percent
Consumer Loans          20 percent            30 percent        28 percent
Commercial Loans        20 percent            10 percent        16 percent

1. What is Bank A's standard deviation of its asset allocation proportions relative to the national banks average?

a. 7.23 percent.
b. 10.89 percent.
c. 18.71 percent.
d. 19.15 percent.
e. 27.36 percent.

2. What is Bank B's standard deviation of its asset allocation proportions relative to the national banks average?

a. 14.16 percent.
b. 33.33 percent.
c. 5.66 percent.
d. 3.00 percent.
e. 1.50 percent.

3.  If Bank A's average return on its loan portfolio is lower than that of Bank B's,

a. its risk-adjusted return is higher than Bank B's.
b. its risk-adjusted return is lower than Bank B's.
c. its standard deviation is lower than Bank B's.
d. its standard deviation is higher than Bank B's.
e. Answers b and d

Additional Information:

This question is from Finance and it is about computing two banks' standard deviation of their asset allocation proportions relative to national bank average. The calculations have been given in the solution in detail.