The Clearwater National Bank Is Planning to Set Up a New

Multiple Choice

The Clearwater National Bank is planning to set up a new branch.This new branch is anticipated to generate 5 percent of the total business of the bank after it is opened.The bank also expects the return for this branch to be 15 percent with a standard deviation of 5 percent.Currently the bank has a 10 percent rate of return with a standard deviation of 5 percent.The correlation between the bank's current return and returns on the new branch is expected to be -0.3.What is this bank's expected risk (measured by the standard deviation) after adding this branch?

A) 21.91 percent
B) 12.84 percent
C) 4.68 percent
D) 3.02 percent
E) 8.2 percent