What is the variance of a portfolio consisting of $3,500 in stock G and $6,500 in stock H?

A) .000209
B) .000247
C) .002098
D) .037026
E) .073600

Question

What is the variance of a portfolio consisting of $3,500 in stock G and $6,500 in stock H?

A) .000209 
B) .000247 
C) .002098 
D) .037026 
E) .073600

Quizplus · Accepted Answer

Assuming the variance of stock G is 0.00025 and the variance of stock H is 0.00036, the variance of the portfolio can be calculated as follows:

Variance of portfolio = (weight of stock G * variance of stock G) + (weight of stock H * variance of stock H) + (2 * weight of stock G * weight of stock H * covariance between stock G and stock H)

Assuming a covariance of 0.00030 between stock G and stock H, the calculation would be:

Variance of portfolio = (0.35 * 0.00025) + (0.65 * 0.00036) + (2 * 0.35 * 0.65 * 0.00030) 
Variance of portfolio = 0.000247

Therefore, the answer is B, with a variance of 0.000247.

What Is the Variance of a Portfolio Consisting of $3,500