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 Data#3 and Metcash is closest to?

Question

Quizplus · Accepted Answer

The volatility of a portfolio that is equally invested in Data#3 and Metcash is closest to 9%. This is because the volatility of a portfolio is equal to the square root of the sum of the variances of the individual assets, weighted by their respective weights in the portfolio. In this case, the variance of Data#3 is 6% squared, or 36%, and the variance of Metcash is 24% squared, or 576%. The weights of Data#3 and Metcash in the portfolio are each 50%, so the variance of the portfolio is 0.5 * 36% + 0.5 * 576% = 306%. The volatility of the portfolio is therefore the square root of 306%, or 9%.

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