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
The question belongs to Finance and it is about calculating two banks’ standard deviation of their asset allocation proportions relative to national bank average. The calculations have been given in the solution in detail.
Total Word Count 90