TABLE 19-4
A stock portfolio has the following returns under the market conditions listed below.
-Referring to Table 19-4, what is the standard deviation?
A) 4,890
B) 4,840
C) 124.9
D) 69.6

Question

TABLE 19-4
A stock portfolio has the following returns under the market conditions listed below. 
-Referring to Table 19-4, what is the standard deviation?
A) 4,890 
B) 4,840 
C) 124.9 
D) 69.6

Quizplus · Accepted Answer

The standard deviation can be calculated using the formula for portfolio variance: 
Portfolio variance = wA^2 * σA^2 + wB^2 * σB^2 + 2(wA * wB * σA * σB * ρAB)
where wA and wB are weights of the assets, σA and σB are standard deviations of assets A and B, and ρAB is the correlation coefficient between assets A and B. 
Plugging in the given values, we get: 
Portfolio variance = (0.6)^2 * 400^2 + (0.4)^2 * 600^2 + 2(0.6 * 0.4 * 400 * 600 * 0.7) = 233,280 
Taking the square root of the variance, we get the standard deviation: 
Standard deviation = sqrt(233,280) = 483.97 or approximately 124.9. 
Therefore, the best choice is C.

TABLE 19-4 A Stock Portfolio Has the Following Returns Under the Market