You have a portfolio which is comprised of 35 percent of stock A and 65 percent of stock B.What is the standard deviation of this portfolio?

A) 4.39 percent
B) 5.68 percent
C) 6.41 percent
D) 7.14 percent
E) 9.08 percent

Question

You have a portfolio which is comprised of 35 percent of stock A and 65 percent of stock B.What is the standard deviation of this portfolio?

A) 4.39 percent 
B) 5.68 percent 
C) 6.41 percent 
D) 7.14 percent 
E) 9.08 percent

Quizplus · Accepted Answer

E(R-Boom) = (0.40 × 22) + (0.60 × 19) = 20.20 E(R-Normal) = (0.60 × 12) + (0.40 × 10) = 10.80 E(R-Recession) = (0.60 × -26) + (0.40 × -4) = -12.80 E(R-Portfolio) = (0.15 × 20.20) + (0.80 × 10.80) + (0.05 × -12.80) = 11.03 Var(Portfolio) = 0.15(20.20 - 11.03)² + 0.80(10.8 - 11.03)² + 0.05(-12.80 - 11.03)² = 41.05 Std Dev(Portfolio) = √41.05 = 6.41 percent

You Have a Portfolio Which Is Comprised of 35 Percent