Exhibit 7.14
Use the Information Below for the Following Problem(S)
Stocks A and B have a correlation coefficient of -0.8. The stocks' expected returns and standard deviations are in the table below. A portfolio consisting of 40% of stock A and 60% of stock B is constructed.
$$\begin{array} { c c c }
\text { Stack } & \text { Expected Return } & \text { Standard Devintion } \
\hline \text { A } & 20 \% & 25 \% \
B & 15 \% & 19 \%
\end{array}$$
-Refer to Exhibit 7.14.What is the standard deviation of the stock A and B portfolio?
A) 0.0%
B) 0.5%
C) 4.1%
D) 6.9%
E) 20.3%

Question

Exhibit 7.14
Use the Information Below for the Following Problem(S)
Stocks A and B have a correlation coefficient of -0.8. The stocks' expected returns and standard deviations are in the table below. A portfolio consisting of 40% of stock A and 60% of stock B is constructed.
 $$\begin{array} { c c c } 
\text { Stack } & \text { Expected Return } & \text { Standard Devintion } \
\hline \text { A } & 20 \% & 25 \% \
B & 15 \% & 19 \%
\end{array}$$
-Refer to Exhibit 7.14.What is the standard deviation of the stock A and B portfolio?
A) 0.0%
B) 0.5%
C) 4.1%
D) 6.9%
E) 20.3%

Quizplus · Accepted Answer

The portfolio of stocks A and B has a standard deviation of
 $$\begin{aligned}
& \sqrt { ( .4 ) ^ { 2 } ( .25 ) ^ { 2 } + ( .6 ) ^ { 2 } ( .19 ) ^ { 2 } + 2 ( - 0.8 ) ( .4 ) ( .25 ) ( .4 ) ( .25 ) } \
= & \sqrt { 0.0100 + 0.0130 - 0.0182 } = \sqrt { 0.0048 } = .0693
\end{aligned}$$

Exhibit 714 Use the Information Below for the Following Problem(S) Stocks

Exhibit 714
Use the Information Below for the Following Problem(S)
Stocks