Instruction 17.2:
Use the information to answer the following question(s).
A U.S. investor is considering a portfolio consisting of 60% invested in the U.S. equity index fund and 40% invested in the British equity index fund. The expected returns for the funds are 10% for the U.S. and 8% for the British, standard deviations of 20% for the U.S. and 18% for the British, and a correlation coefficient of 0.15 between the U.S. and British equity funds.
-Refer to Instruction 17.2.What is standard deviation of the proposed portfolio?
A)38.00
B)19.20
C)19.00
D)14.45

Question

Quizplus · Accepted Answer

The standard deviation of the portfolio is calculated using the formula: √[(w₁² * σ₁²) + (w₂² * σ₂²) + (2 * w₁ * w₂ * σ₁ * σ₂ * ρ)], where w₁ and w₂ are the weights, σ₁ and σ₂ are the standard deviations, and ρ is the correlation coefficient. Plugging in the values: √[(0.6² * 0.2²) + (0.4² * 0.18²) + (2 * 0.6 * 0.4 * 0.2 * 0.18 * 0.15)] = 14.45%.

Instruction 17.2: Use the Information to Answer the Following Question(s)