Assignment:
A global investment risk manager is assessing an investment's performance using a two-factor model. In order to determine the volatility of the investment, the risk manager developed the following factor covariance matrix for global assets:
|
Global Equity Factor
|
Global Bond Factor
|
|
Global Equity Factor
|
0.24500
|
0.00791
|
|
Global Bond Factor
|
0.00791
|
0.01250
|
Suppose the factor sensitivity to the global equity factor is 0.75 for the investment and the factor sensitivity to the global bond factor is 0.20 for the investment. The volatility of the investment is closest to:
a. 11.5%
b. 24.2%
c. 37.5%
d. 42.2%