Page 75 - CAPE Financial Services Syllabus Macmillan_Neat

Holding Period Return = (1 − 0) +
0 0
Expected Return (Single asset)
Variance ℎ 1 ,
Standard deviation 0
Portfolio return

Variance of a portfolio = +

() = ∑

=1

ℎ ,

2 = ∑=1[ − ()]2
ℎ ,

Square root of the variance

() = ∑ ()

=1

ℎ ℎ
()

∗ () = () + (1 − )
ℎ

(1 − ) ℎ

−
ℎ −

2 = 2 2 + 2 2 + 2(, )

ℎ ℎ ℎ ,
ℎ ℎ ℎ

Standard deviation of a portfolio Square root of the variance
CXC A38/U2/16
*When a risky asset is combined with a risk-free
asset, the portfolio standard deviation equals the
risky asset’s standard deviation multiplied by the
portfolio proportion invested in the risky asset.

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