Calculate the risk (standard deviation)of the following two-security portfolio if the correlation coefficient between the two securities is equal to 0.5. $\begin{array}{lll} \underline{\text { Variance } }&&\underline{ \text { Weight (in the portfolio) }}\ \text { Security A } & 10 & 0.3 \ \text { Security B } & 20 & 0.7 \end{array}$ A)17.0 percent B)5.4 percent C)2.0 percent D)3.7 percent

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Quizplus · Accepted Answer

The portfolio standard deviation is calculated using the formula: $\sqrt{w_A^2 \sigma_A^2 + w_B^2 \sigma_B^2 + 2w_Aw_B\sigma_A\sigma_B\rho}$. Substituting the given values: $\sqrt{0.3^2 \times 10 + 0.7^2 \times 20 + 2 \times 0.3 \times 0.7 \times \sqrt{10} \times \sqrt{20} \times 0.5}$ results in approximately 3.7 percent.

Calculate the Risk (Standard Deviation)of the Following Two-Security Portfolio If