Exhibit 7.6
Use the Information Below for the Following Problem(S)
$$\begin{array} { c c }
Asset (A) & \text { Asset(B) } \
\mathrm { E } \left( R _ { A } \right) = 16 \% & \mathrm { E } \left( \mathrm { R } _ { B } \right) = 10 \% \
\left( \sigma _ { A } \right) = 9 \% & \left( \sigma _ { B } \right) = 7 / \
W _ { A } = 0 .5 & W _ { B } =0 .5 \
C O V _ { A , B } = 0 .0009
\end{array}$$
-Refer to Exhibit 7.6.What is the standard deviation of this portfolio?
A) 6.08%
B) 5.89%
C) 7.06%
D) 6.54%
E) 7.26%

Question

Exhibit 7.6
Use the Information Below for the Following Problem(S)
 $$\begin{array} { c c } 
Asset (A) & \text { Asset(B) } \
\mathrm { E } \left( R _ { A } \right) = 16 \% & \mathrm { E } \left( \mathrm { R } _ { B } \right) = 10 \% \
\left( \sigma _ { A } \right) = 9 \% & \left( \sigma _ { B } \right) = 7 / \
W _ { A } = 0 .5 & W _ { B } =0 .5 \
C O V _ { A , B } = 0 .0009
\end{array}$$
-Refer to Exhibit 7.6.What is the standard deviation of this portfolio?
A) 6.08%
B) 5.89%
C) 7.06%
D) 6.54%
E) 7.26%

Quizplus · Accepted Answer

The standard deviation of a portfolio is calculated using the formula:  $\sigma_p = \sqrt{(W_A^2 \cdot \sigma_A^2) + (W_B^2 \cdot \sigma_B^2) + (2 \cdot W_A \cdot W_B \cdot COV_{A,B})}$.  Substituting the given values:  $\sigma_p = \sqrt{(0.5^2 \cdot 0.09^2) + (0.5^2 \cdot 0.07^2) + (2 \cdot 0.5 \cdot 0.5 \cdot 0.0009)}$.  $\sigma_p = \sqrt{(0.002025) + (0.001225) + (0.00045)}$.  $\sigma_p = \sqrt{0.0037}$.  $\sigma_p = 0.0608$ or 6.08%.

Exhibit 76 Use the Information Below for the Following Problem(S)

Exhibit 76
Use the Information Below for the Following Problem(S)