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Question
Murphy National Bank is thinking about adding a new branch in a very different market area. It estimates that the new office will have an expected return of 16% with a standard deviation of 8%. Currently, it has an expected return of 12% with a standard deviation of 4%. The correlation between the returns on the new branch and the bank's current returns is estimated to be 0.20. The bank estimates that the new branch will represent 15 percent of the revenues of the bank. What is the bank's expected risk (measured by the standard deviation) with the new branch? Round to the nearest 0.1 percent.
A. 14.6 percent
B. 3.8 percent
C. 4.6 percent
D. 7.4 percent
E. 5.8 percent
Answer
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