00:05
Now, in this question, basically, we look at two funds, right? one is called all -world fund, right? i've been called an award fund.
00:14
And this fund has a return, right, averaged at 7 .8 % and with a standard of age of 18 .9%.
00:26
On the other hand, there's another fund which is called a treasury bond fund, right.
00:35
This fund has a low average return, which is 5 .5%, and also a smaller standard variation, 4 .6%.
00:44
So which one is more risk? obviously, this one is more risk here, right, because it has a wider variations, right? so it's a risk here, but also, of course, the benefits could be higher, right? there's risk and this benefit.
00:59
So this one's more risky, obviously.
01:02
It has bigger, it has bigger variation, fluctuation, as is based in this standard deviation rate.
01:09
Now, suppose you have a client, which wants to invest 75 % in this all -water fund and 25 % in the treasury bond fund.
01:21
What is expected return standard valuation rate? well, the expected return, let me write it as all right, of expected return, and that was given by 75 % and times the average return of this fund as 7 .8%, sorry, 7 .8 % and plus 25 % times 5 .5%.
01:47
Now this, of course, will give you basically, if you do the calculation, that gives you 0 .75 times 7 .8 and plus 0 .25 times 5 .5 .5.
02:01
That would give you, of course, 7 .2 .7 .5.
02:04
That would give you, 3%, okay, that's the expected return.
02:07
And what would be the standard deviation for this? well, the standard deviation, i'm going to call the sigma of the return, and that's actually going to be doing by square root of the standard division of this, which is 18 .9 % and times, of course, the corresponding proportion with 0 .75 and squared, and plus also the 4 .6 variation for the second fund and times the corresponding portfolio, right, 0 .25 and squared...