Use the table for the question(s) below.
Consider the following expected returns, volatilities, and correlations:
$\begin{array}{lccccc}
\hline&\text { Expected }&\text {Standard }&\text {Correlation with }&\text {Correlation with }&\text {Correlation with }\
\text { Stock } & \text { Return } & \text { Deviation } & \text { Data\#3 } & \text { Metcash } & \text { Webjet } \
\hline \text { Data\#3 } & 14 \% & 6 \% & 1.0 & -1.0 & 0.0 \
\hline \text { Metcash } & 44 \% & 24 \% & -1.0 & 1.0 & 0.7 \
\hline \text { Webjet } & 23 \% & 14 \% & 0.0 & 0.7 & 1.0
\end{array}$
-The volatility of a portfolio that is equally invested in Webjet and Data#3 is closest to?

Question

Quizplus · Accepted Answer

The portfolio volatility is calculated using the formula for two assets: $\sqrt{w_1^2 \sigma_1^2 + w_2^2 \sigma_2^2 + 2w_1w_2\sigma_1\sigma_2\rho_{12}}$. With equal weights (0.5 each), volatilities of 6% and 14%, and correlation of 0, the volatility is approximately 7.6%.

Use the Table for the Question(s) Below -The Volatility of a Portfolio That Is Equally Invested in Expected