Assuming that the interaffiliate cash flows are uncorrelated with one another, calculate the standard deviation of the portfolio of cash held by the centralized depository for the following affiliate members:

Question

Quizplus · Accepted Answer

The standard deviation of a portfolio of cash is the square root of the sum of the variances of the individual cash flows. Assuming uncorrelated cash flows, the variance of the portfolio can be calculated as follows:
Var(portfolio) = Var(A) + Var(B) + Var(C)
= ($160,000)^2 + ($200,000)^2 + ($240,000)^2
= $67,200,000,000
Taking the square root of this gives us the standard deviation of the portfolio:
StDev(portfolio) = sqrt(67,200,000,000)
= $104,880.88

Therefore, the correct answer is C, $104,880.88.

Assuming That the Interaffiliate Cash Flows Are Uncorrelated with One