Use the table for the question(s)below.
Consider the following covariances between securities:
-The variance on a portfolio that is made up of equal investments in Duke Energy and Microsoft stock is closest to:
A).065.
B)0.090.
C).149.
D)-0.020.

Question

Use the table for the question(s)below.
Consider the following covariances between securities: 
-The variance on a portfolio that is made up of equal investments in Duke Energy and Microsoft stock is closest to:
A).065. 
B)0.090. 
C).149. 
D)-0.020.

Quizplus · Accepted Answer

The variance of a portfolio with equal investments in two stocks is calculated using the formula: Var(P) = (w1^2 * Var1) + (w2^2 * Var2) + (2 * w1 * w2 * Cov12). Assuming equal weights and typical variance values, option A is closest to a reasonable variance for such a portfolio.

Use the Table for the Question(s)below