You put half of your money in a stock portfolio that has an expected return of 14% and a standard deviation of 24%. You put the rest of your money in a risky bond portfolio that has an expected return of 6% and a standard deviation of 12%. The stock and bond portfolios have a correlation of .55. The standard deviation of the resulting portfolio will be ________.
A) more than 18% but less than 24%
B) equal to 18%
C) more than 12% but less than 18%
D) equal to 12%

Question

Quizplus · Accepted Answer

σ²_p = (.5²)(.24²) + (.5²)(.12²) + 2(.5)(.5)(.24)(.12).55 = .02592; σ = 16.1%

You Put Half of Your Money in a Stock Portfolio