Suppose Stock A has an expected return of 15%, a standard deviation of 20%, and a Beta of 0.4 while Stock B has an expected return of 25%, a standard deviation of 30% and a beta of 1.25, and the correlation between the two stocks is 0.25. What is the standard deviation for a portfolio with 80% invested in Stock A and 20% invested in Stock B?
A) 15.8%
B) 18.4%
C) 22.0%
D) 28.0%

Question

Quizplus · Accepted Answer

The standard deviation of a portfolio is calculated using the formula: √(wA²σA² + wB²σB² + 2wAwBσAσBρAB), where wA and wB are the weights, σA and σB are the standard deviations, and ρAB is the correlation. Plugging in the values: √(0.8² * 0.2² + 0.2² * 0.3² + 2 * 0.8 * 0.2 * 0.2 * 0.3 * 0.25) = 18.4%.

Suppose Stock a Has an Expected Return of 15%, a Standard