Assume there is a fixed exchange rate between the Canadian and U.S.dollar.The expected return and standard deviation of return on the U.S.stock market are 18% and 15%,respectively.The expected return and standard deviation on the Canadian stock market are 13% and 20%,respectively.The covariance of returns between the U.S.and Canadian stock markets is 1.5%.If you invested 50% of your money in the Canadian stock market and 50% in the U.S.stock market,the standard deviation of return of your portfolio would be _________.

Question

Quizplus · Accepted Answer

The standard deviation of a portfolio is calculated using the formula: √(w₁²σ₁² + w₂²σ₂² + 2w₁w₂Cov₁₂), where w₁ and w₂ are the weights, σ₁ and σ₂ are the standard deviations, and Cov₁₂ is the covariance. Substituting the given values: √(0.5² * 15² + 0.5² * 20² + 2 * 0.5 * 0.5 * 1.5) = 12.53%.

Assume There Is a Fixed Exchange Rate Between the Canadian